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International Journal of Manpower

The relationship between HRM, technology innovation and performance in China


Yuan Li Yongbin Zhao Yi Liu
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Yuan Li Yongbin Zhao Yi Liu, (2006),"The relationship between HRM, technology innovation and
performance in China", International Journal of Manpower, Vol. 27 Iss 7 pp. 679 - 697
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The relationship between HRM,


technology innovation and
performance in China
Yuan Li, Yongbin Zhao and Yi Liu
Management School of Xian Jiaotong University, Shaanxi, China

Technology
innovation and
performance
679
Received 1 January 2004
Revised 10 October 2005
Accepted 17 October 2005

Abstract
Purpose Human resource management (HRM) is seen as crucial for innovation and firm
performance in China. This paper aims to carry out an empirical research to investigate the effects of
main dimensions of HRM on technological innovation as well as organizational performance.
Design/methodology/approach The research uses a sample of 194 high-tech firms surveyed in
eight provinces in China.
Findings This research finds that employee training, immaterial motivation and process control
have positive effects on technological innovation, while material motivation and outcome control have
a negative influence on technological innovation. It is also found that technological innovation is
positively related with performance.
Research limitations/implications This study does not consider the different influence of every
HRM dimension affecting different innovation types. This should be a future research topic.
Practical implications This study provides useful managerial implication for managers. First,
employee training is needed to develop employees knowledge. Second, material incentive is needed
but not main motivation in Chinese high-tech firms. Third, process control should be emphasized more
than outcome control in Chinese high-tech firms.
Originality/value This study demonstrated that the HRM significantly contributed to
technological innovation and firm performance. This study demonstrates that Chinese high-tech
firms HRM has an important influence on technological innovation, and lead to firms superior
performance.
Keywords Human resource management, Motivation (psychology), Innovation,
Organizational performance, China
Paper type Research paper

Introduction
The relationship between HRM and firm performance has received considerable
attention from HRM researchers and innovation researchers in recent years. A vast
amount of research has proved the positive relationship between HRM and a given
firm performance (Huselid, 1995; Schuler and Jackson, 1987). Research has also been
done on the relationship between technological innovation and firm performance
(Foster, 1986; Hill and Rothaermel, 2003; Tripsas and Gavetty, 2000).
However, several gaps in this research field remain. First, few studies researched
the way in which the relative factors in human resource management affect firm
performance in technological innovation. Innovation theory holds that firm innovation
can help firms seize opportunities in uncertain environments, acquire competitive
This paper was supported by the NSFC (70472039, 70272023).

International Journal of Manpower


Vol. 27 No. 7, 2006
pp. 679-697
q Emerald Group Publishing Limited
0143-7720
DOI 10.1108/01437720610708284

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advantages over rivals, and have an important influence on firms long-term


performance (Hitt et al., 1997). However, few researchers on innovation can find out
exactly where innovation comes from (Damanpour and Gopalakrishnan, 1998).
Especially, what types of organization control and management incentive in HRM are
advantageous for innovation?
Second, most prior research focuses on cases in Western countries; however few
focus on emerging economies such as China. Because of the huge difference in the
market environment and the management mechanisms between Western countries
and China, there should be much different research results on HRM affecting
technological innovation and firm performance in China. This provides an interesting
context in which to analyze the interactions between HRM, innovation and
performance. In the past decade, many high-tech firms have been established in
China. In the Beijing High Technology Experimental Zone alone, the number of
technology firms has increased from 527 in 1988 to 4,546 in 1998. Sales income from
these firms has increased from US$175 million to US$5.7 billion, with annual growth
rate of 42.6 per cent (Chinas Science and Technology Commission, 1999). In most
Chinese high-tech firms, top managers often want to obtain even higher performance
through effective technological innovation. However, compared with their counterparts
in market economies, the competitive advantage of these high-tech firms is much more
constrained by limited financial resources and limited technical and marketing
capabilities (Peng and Heath, 1996). This is due to relatively underdeveloped
institutional frameworks and a transitional economy. Meanwhile, limitations in the
methods and the capabilities in human resource management (HRM) have also
constrained these firms development. Many top managers of Chinese high-tech firms
want to know how relative factors such as employee training, motivation and appraisal
and control in HRM affect technological innovation.
Third, most prior research has not focused on high-tech firms. In particular, this
shortcoming in the literature is true for high-tech firms in transitional economies.
These firms must not be overlooked because they play a significant role in economic
and social development in these countries (Bruton and Rubanik, 1997; Zhao and Aram,
1995).
In order to address these significant gaps, drawing on resource based theory and
innovation theory, this article aims to investigate HRM, technological innovation and
firms performances using a conceptual framework. In addition, we examine the
relationship between these factors in Chinese high-tech firms through empirical
methods so as to explain the influence of HRM on firms technological innovation and
performance under Chinas transitional economy. The following is the structure of this
paper: first, by reviewing literature on HRM, technological innovation and firm
performance, we present the conceptual model shown in Figure 1. Second, we discuss
the relationships between high-tech firms HRM, technological innovation and firm
performance, and then present our hypotheses. Next, we describe the study method
and the study results, and finally discuss our findings.
Theoretical background and hypotheses
Several researchers have noted that HRM leads to firm sustainable competitive
advantage and superior performance, and HRM is an important means of gaining these
competitive advantage (Schuler and MacMillan, 1984; Barney, 1991; Wright et al.,

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Figure 1.
Conceptual model

1994). Technological innovation the development of new products or new


technologies has an important influence on firm performance (Mumford, 2000). In
practice, a firms technological innovation mainly comes from internal innovation
(Pavitt, 1990), and internal innovation mainly comes from the employee with
capability. Thus, there is a close relationship between HRM, technological innovation
and firm performance. In the long run, efficient HRM can advance a firms
technological innovation, improve the companys competitive advantage and increase
the companys performance (Huselid, 1995).
Resource-based theory suggests that a firms resources are extremely important for
the firms development, and that human capital is a key resource of a firm. The
function of this resource depends on the employees ability and enthusiasm, and on
efficient human resource management (Mumford, 2000). In HRM practice, the training
of the employees, motivation and effective appraisal and control are the important
issues (Huselid, 1995, Schuler and Jackson, 1999).
First, the employee can more rapidly acquire new knowledge and further develop
innovation competencies through training (Chi et al., 1989).
Second, the motivation of the employee has direct influence on technological
innovation, though there are, as is inevitable, different results from different
researchers (Amabile et al., 1986; Hennessey and Amabile, 1998; Baer, 1997,
Eisenberger and Cameron, 1996; Redmond et al., 1993).
Third, because technological innovation is a process accompanied with high risk, it
is necessary to use effective controls to reduce risk and enhance efficiency. There are
two types of major internal controls associated with a firms technological innovation:
outcome control and process control (Li et al., 2005). Outcome control stresses final
performance and entails objective criteria such as return on investment to appraise

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innovation (Hitt et al., 1996). Process control entails subjective and sometimes intuitive
criteria for evaluation and emphasizes the long-term performance of the firm (Gupta,
1987). Meanwhile, different control types often depend on relative incentive method. In
other words, different incentive methods will influence top managers of the firms to
choose different internal control types. Because material incentive is always based on
some objective outcomes, there is a close relationship between material incentive and
outcome control. Some research indicates that the main difference between a high-tech
firm and a traditional firm is that there is a higher educational level of employees and a
higher percentage of scientific and technical personnel to total employment in
high-tech firms (Riche et al., 1983). In high-tech firms, individuals care more about
self-development and pursue self-actualization. And because employees in high-tech
firms possess higher knowledge levels and are more independent, they prefer frequent
communion with managers (Mumford, 2000). Thus, there should be a close relationship
between non-material incentive and process appraisal and control.
Innovation of firms is the basis of economic development and the necessary path of
firm development. Innovation makes employees more productive and firms more
efficient (Dougherty and Hardy, 1996; Lawless and Anderson, 1996). Therefore,
technological innovation can improve firm performance (Dougherty and Hardy, 1996;
Li and Deng, 1999).
According to the discussion above, we present the conceptual model in Figure 1.
Employee training and technological innovation
Becker (1964) suggests that employee training allows employees to use the new skills.
In high-tech firms, employees with more innovation knowledge are important
resources of the firms, and they are required to continually attain new knowledge and
skills to keep pace with development of technologies. Training can advance employees
capabilities of accepting new skills and using new knowledge, and improve employees
competence in innovation. Innovation involves the production of new ideas, or ideas
that can be implemented to solve some significant novel problem (Mumford and
Gustafson, 1998). As Basadur (1997), Brophy (1998) and Martinsen (1993) note,
different innovations emphasize different processes and impose different requirements.
As a result, through training, employees can more rapidly acquire new knowledge, and
can increase their innovation ability (Chi et al., 1989). Moreover, the people who have
broad expertise and knowledge may produce more technological innovation (Mumford,
2000). Therefore, we suggest:
H1. Employee training is positively related to the technological innovation of
Chinese high-tech firms.
Employee motivation and technological innovation
Firm employees require organizational incentives to enhance the innovation process.
Peoples behavior can largely be explained in terms of two dominant interests:
economic gain and social acceptance (Harsanyi, 1969). Both economic gain and social
acceptance create incentive for the employee. Thus, the incentives for the employee can
also be divided into material incentives and non-material incentives; material incentive
is mainly economic gain, and non-material incentive is mainly social acceptance.
Material and non-material incentives can meet the different needs of employees in
technological innovation activities.

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A series of studies by Amabile and her colleagues (Amabile et al., 1986; Hennessey
and Amabile, 1998) indicate that extrinsic rewards concrete tangible rewards such as
bonuses, pay increases, and awards are detrimental to innovation. Mehr and Shaver
(1996) also find that rewards based on innovation outcomes can impair innovation. In
China, most high-tech firms are small in size and have only recently entered the
market. In order to obtain competitive advantage, these firms often have to implement
differentiation strategy and do explorative innovation. During Chinas economic
transitional period, because the capital market is not developed and firms cannot use
some methods such as stock rights and option rights as employee incentives, the
material motivation method is comparatively simple. Meanwhile, in Chinese high-tech
firms, because most employees have a higher salary level, it is difficult to use material
incentives to encourage employees to take on higher risk innovation activities. Thus,
material incentives may not encourage employee innovation in high risk and long-term
projects because of the characteristics of material incentives. Additionally, because the
knowledge level of the employees in the high-tech firms is higher than that of
traditional firms, the individuals who take part in innovation generally have keen
needs for self-actualization (Mumford, 2000). Thus, the individuals who are efficient in
innovation may tend to follow their own ideas and interests (Dudeck and Hall, 1991;
Gruber, 1996). Thus, material incentives may have a negative relationship with
individual enthusiasm, while non-material incentive can meet the needs of
self-actualization, and have a positive relationship with technological innovation.
Therefore, we suggest the following hypotheses:
H2. The more emphasis on material motivation the less possibility of
technological innovation in Chinese high-tech firms.
H3. The more emphasis on non-material motivation the more possibility of
technological innovation in Chinese high-tech firms.
Control and technological innovation
From an organizational control theory, control can ensure that a firms activities are
accomplished as planned and that activities are completed in ways that lead to the
attainment of the organizations goals (Robbins, 2001). Firms can function well by
using the appropriate control method. Because outcome appraisal and control is a
relatively short-term performance measure and uses objective criteria such as return on
investment and return on assets, this approach is better applied when the environment
is less complex and the performance criteria can be specified in advance. On the other
hand, process appraisal and control emphasize information collection and information
exchange inside the organization to develop subjective assessment using relevant
strategic criteria (Hitt et al., 1996; Li et al., 2005).
Technological innovation is the process of combining and reorganizing knowledge
to generate new ideas. When firms innovate radically, they generally need to deal with
high uncertainty. Mumford (2000) noted that if firms emphasize outcomes too much,
they will develop low-level technological innovation. Under Chinas transitional
economy, because of small firm size, short time of entering the market, and the
uncertain market environment, most Chinese high-tech firms need develop a radical
product to build their differentiation advantage. In these cases, outcome control cannot
be used efficiently to promote effective innovation in these high-tech firms. Meanwhile,

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emphasizing innovation outcomes too heavily can make managers and employees
focus on the failure risk of the innovation and their self-interest loss; thus, they will
abandon innovations with higher risk. Mehr and Shaver (1996) find that there is no
positive relationship between specific performance objectives and innovation.
However, by using process appraisal and control, the managers and employees will
not fear of loss in economic interest and social acceptance as the result of failure of
technological innovation. Thus, they will be enthusiastic in carrying out technological
innovation activities.
In the innovation process, it may be very difficult for high-tech firms to efficiently
evaluate innovation process using outcome indices, and different evaluation standards
may be needed for different types of work under different innovation context (Brophy,
1998). Hitt et al. (1996) found that there is positive relationship between strategic
process control and internal innovation. Along similar lines, Scott (1995) has argued
that innovation work is better managed by directing process and approach rather than
specifying a single desired outcome. Therefore, we suggest the following hypotheses:
H4. Appraisal and control based on innovation outcomes is negatively related to
technological innovation in Chinese high-tech firms.
H5. Appraisal and control based on innovation process is positively related to
technological innovation in Chinese high-tech firms.
Motivation and control
In addition to employee motivation and control having a direct effect on technological
innovation, there is a close relationship between motivation and the control factors
(Bradley and Gelb, 1981; Orpen, 1994). In the process of technological innovation,
motivation is closely related to innovation appraisal and control.
Because the result of technological innovation is often uncertain, individuals need
time to evaluate and to select in multi-goals (Redmond et al., 1993). This requires that
firms give the individual freedom to construct his or her work activities in innovation
(Mumford, 2000). As Amabile (1997) suggests, too much emphasis on extraneous
events particularly events inducing external performance pressure may reduce the
intrinsic motivation and curiosity needed for innovation work. It is more appropriate to
use process appraisal and control for the high-tech firms employees. Non-material
motivation does not consider objective and measurable criteria very crucial. In
high-tech firms, because of employees higher knowledge level, non-material
motivation is more important. Process control generally uses subjective criteria to
measure outcomes (Gupta, 1987) rather than objective criteria. Therefore, non-material
motivation can lead employees to set goals for long-term performance, and is positively
related with process appraisal and control.
On the other hand, because material incentives require actual objective and
measurable criteria, and the incentive degree is based on the appraisal of employees
performance, appraisal of employee performance based on innovation outcomes is
closely related with material incentives. Therefore, for Chinese high-tech firms, we
suggest the following hypothesis:
H6. The more high-tech firms emphasize material motivation, the greater the
possibility of outcomes appraisal and control in China.

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H7. The more high-tech firms emphasize non-material motivation, the greater the
possibility of process appraisal and control in China.
Technological innovation and firm performance
Technological innovation has enormous influence on firm performance (Nohria and
Gulati, 1996). For Chinese high-tech firms, technological innovation should also be an
important factor influencing the improvement of performance. With more rapid
technical change and increasing global competition, it has become clear that the ability
of organizations to develop innovative new products and services is a crucial influence
on long-term performance (Hitt et al., 1997). Numerous studies have repeatedly shown a
positive relationship between a firms technological innovation and performance, and
concluded that technological innovation is important for firm performance (Abernathy
and Utterback, 1978; Foster, 1986). For Chinese high-tech firms in a transitional
economy, technological innovation also improves firm performance. Therefore, we
suggest:

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H8. Technological innovation in Chinese high-tech firms is positively related to


performance.
Methodology
Samples
A questionnaire survey research method was used to seek responses from some typical
firms in Shaanxi, Henan, Shanghai, Guangdong, Liaoning, Sichuan, Shandong and
Shanxi provinces of China. According to a sample frame provided by the Economy
Commerce Committee of the eight provinces, we randomly selected 300 high-tech firms
as our study firms. Then, interviewers telephoned potential respondents and solicited
personal interviews, and 280 firms accepted our survey. Descriptors of the sample are
summarized in Table I.

Sample characteristics

Percentage

Industries
Material industry
Chemical industry
Electronic industry
Engineering industry
Medicine
Other industry

5.2
9.3
40.2
25.2
12.9
7.2

Employee numbers
50 or less
51-200
201-500
501-1,000
1,000 or more

18.5
37.1
19.1
9.3
16.0

Note: n = 194

Table I.
Sample descriptors

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Pilot study
In designing the questionnaire regarding the actual conditions faced by Chinese
high-tech firms, we consulted existing questionnaires on the same relative problems
from the literature. Using a preliminary draft questionnaire, a pilot test was conducted
with 15 firms from Shaanxi, Henan, and Shandong provinces. These responses were
excluded from the final study. The questionnaire was revised using the feedback from
the pilot study.
Questionnaire
Data was collected through intensive, in-depth interviews and usually one-to-one.
Every interview was about one hour to 90 minutes in duration. Our interviewers had
face-to-face communication and explanation with the top managers and relevant
department directors of the firms; so that the demand of fulfilling the questionnaire
was understand by them. Our interviewees were top firm managers, so they had a
comparatively deep understanding of the firms HRM process and technological
innovation activity, and their responses to the questionnaire could actually
demonstrate the firms condition. The time frame chosen was from 1997 to 2001,
because significant restructuring activity occurred during this period.
A total of 280 high-tech firms were surveyed, 200 high-tech firms provided complete
information. Unfortunately, six sample firms were ineligible because of company
liquidation or inadequate completion of the survey questionnaire. That is, 194
high-tech enterprises had all the necessary data. The overall response rate for the
survey was 71.43 percent (200 out of 280), and the effective rate was 69.29 percent
(194/280). This response rate is quite high, given that the surveys were completed by
CEOs or their designees, whose time is often scarce.
In order to test the latent dangers in common method variance, we took two steps.
First, in order to insure the reliability of answers to our questions, we tried collecting
data from different managers in the same firm. A total of 56 high-tech firms completed
the two surveys. Through correlation analysis, we found there was not a significant
difference between answers to the same questions in the two surveys (Pason
coefficients were from 0.362 to 0.792). Second, to assess the non-response bias, we
compared the responding firms with the non-responding firms and found no
significant differences in terms of firm size and age.
Measures
Employee training. Measures of employee training were developed based on the
research of Snell and Lau (1994). Employee training was measured by three items:
(1) increasing more investment in employee training in the last five years;
(2) emphasizing professional training for employees; and
(3) encouraging employee learning through systematic courses and learning by
doing.
Responses were made on a seven-point scale ranging from 1, strongly disagree, to 7,
strongly agree. The Cronbachs coefficient alpha for this scale is 0.60.
Material incentive. The three items that measured material incentive are mainly
based on the scales of Kuratko et al. (1997). They are:

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(1) increasing individual material fortune;


(2) increasing opportunity to gain an economic interest in the firm; and
(3) a guarantee of future income for family members.
Responses were made on a seven-point scale ranging from 1, strongly disagree, to 7,
strongly agree. The Cronbachs coefficient alpha for this scale is 0.85.
Non-material incentive. The three items that measure non-material incentive are
mainly based on the scales of Kuratko et al. (1997). They are:
(1) acquiring social acceptance, praise and honor;
(2) obtaining individual opportunity by accepting the challenge of the innovation; and
(3) progress of personal in business or work.
Responses were made on a seven-point scale ranging from 1, strongly disagree, to 7,
strongly agree. The Cronbachs coefficient alpha for this scale is 0.78.
Process appraisal and control. In order to study the influence of appraisal and control
of innovation process on firms technological innovation, we designed measurable items
based mainly on the research of Prowse (1995) and Xu and Wang (1997):
(1) permitting the employees to make mistakes during the innovation process;
(2) a high degree of trust between leaders and subordinates; and
(3) building benign relationships between collaborators.
Responses were made on a seven-point scale ranging from 1, strongly disagree, to 7,
strongly agree. The Cronbachs coefficient alpha for this scale is 0.88.
Outcome appraisal and control. In this study, the measures of outcome appraisal and
control are mainly taken from the research of Hitt et al. (1996). They are:
(1) high requirement on the ROI (return on investment) to the innovation;
(2) cash currency being abundant through the innovation; and
(3) high increasing speed of net assets through the innovation.
Responses were made on a seven-point scale ranging from 1, strongly disagree, to 7,
strongly agree. The Cronbachs coefficient alpha for this scale is 0.74.
Technological innovation. Items that measure technological innovation were mainly
taken from the scales of Zahra et al.s (2000) research. Technological innovation was
measured by five items:
(1) frequent introduction of new product ideas into production process;
(2) high probability of success for new products being tested;
(3) spending shorter periods in new product research and development;
(4) radical improvement in the companys technology; and
(5) frequently renewal of equipment.
Responses were made on a seven-point scale ranging from 1, strongly disagree, to 7,
strongly agree. The Cronbachs coefficient alpha for this scale is 0.73.
Firm performance. We measured a firms financial performance using four items
based on the research of Daily and Johnson (1997):

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(1)
(2)
(3)
(4)

increasing rate
increasing rate
increasing rate
increasing rate

of
of
of
of

sales revenue;
profit;
net asset ROI (return on investment); and
market share.

Responses were made on a seven-point scale ranging from 1, strongly reduced, to 7,


strongly increased. The Cronbachs coefficient alpha for this scale is 0.85.
Analyses and result
We tested our model with the statistical software SPSS10.0 and AMOS4.0. Structural
equation analysis is a combination of factor analysis and path analysis. Our approach
to estimating the structural equations model follows the two-stage procedure
recommended by Anderson and Gerbing (1988):
(1) Estimating a models reliability and validity, which can assure the variables
used in following analysis is reliable and valid. Estimation of a models
reliability and validity is done with SPSS10.0.
(2) Testing the theoretical model.
The hypotheses were tested using structural equation modeling (SEM) techniques as
implemented in AMOS 4.0.
Reliability analysis
Composite reliability assesses inter-item consistency, which was operationalized using
the internal consistency method that is estimated using Cronbachs alpha. Typically,
reliability coefficients of 0.70 or higher are considered adequate (Cronbach, 1951;
Nunnally, 1978). Nunnally (1978) further states that permissible alpha values can be
slightly lower (. 0.60) for newer scales. Although the constructs developed in this
study are measured primarily on previously validated measurement items and
strongly grounded in the literature, they are modified somewhat to suit the Chinese
context. Therefore, an alpha value of 0.60 was considered as the cut-off value. As
shown in Table II, three Cronbachs alpha values are more than 0.80 and three between
0.70 and 0.79, but the alpha of employee training is 0.60. These results suggest that the
theoretical constructs exhibit good psychometric properties.
Construct validity
Construct validity is the extent to which the items on a scale measure the abstract or
theoretical construct (Chandler, 1991; Churchill, 1979). Testing of construct validity
concentrates not only on finding out whether an item loads significantly on the factor it
is measuring (i.e. convergent validity) but also on ensuring that it measures no other
factors (i.e. discriminant validity) (Campbell and Fiske, 1959).
Convergent validity exists if a group of indicators are measuring one common
factor. Convergent validity is demonstrated by the statistical significance of the
loadings at a given alpha (e.g. P 0:05). A loading of 0.7 indicates that about one-half
of the items variance (the squared loading) can be attributed to the construct; thus, 0.7
is the suggested minimum level for item loadings on established scales (Fornell and
Larcker, 1981). Of the 24 items in the various scales, only three were below this

Constructs

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Employee training
(ET)

Items
ET-01
ET-02
ET-03

Material incentive
(MI)

MI-01
MI-02
MI-03

Non-material
incentive (NI)

NI-01
NI-02
NI-03

Process appraisal
and control (PC)

PC-01
PC-02
PC-03

Outcome appraisal
and control (OC)

OC-01
OC-02
OC-03

Technological
innovation (TI)

TI-01
TI-02
TI-03
TI-04
TI-05

Firm performance
(FP)

FP-01
FP-02
FP-03
FP-04

Factor
loading

Item name
Increasing more investment in employee training in
the last five years
Emphasizing professional training for employees
Encouraging employee learning through systematic
courses and learning by doing

0.79
0.68

0.80

Acquiring social acceptance, praise and honor


Obtaining individual opportunity by accepting the
challenge of the innovation
Progress of personal in business or work
Permitting the employees to make mistakes during
the innovation process
A high degree of trust between leaders and
subordinates
Building benign relationships between collaborators
High requirement on the ROI (return on investment)
to the innovation
Cash currency being abundant through the
innovation
High increasing speed of net assets through the
innovation
Frequent introduction of new product ideas into
production process
High probability of success for new products being
tested
Spending shorter periods in new product research
and development
Radical improvement in the companys technology
Frequently renewal of equipment

0.80

rate of sales revenue


rate of profit
rate of net asset return on investment
rate of market share

0.60

689

0.75

Increasing individual material fortune


Increasing opportunity to gain an economic interest
in the firm
A guarantee of future income for family members

Increasing
Increasing
Increasing
(ROI)
Increasing

Technology
innovation and
performance

0.85

0.86
0.87
0.78

0.83
0.87
0.93

0.88

0.94
0.84
0.60

0.74

0.93
0.91
0.69

0.73

0.80
0.70
0.68
0.62
0.90
0.93

0.85

0.88
0.66

threshold and three were slightly less than the threshold, implying both the statistical
significance of relationships between the items and constructs and reliability of
individual items.
Assessment of model fit
As Table III shows, the overall fit of the saturated measurement model is good. With
AMOS, the model yielded a chi-square of 176.430 with 175 d.f. Although analysis of

Table II.
Convergent validity
constructs

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690

Table III.
Structural fitness test

Absolute fitness indicators


Discrepancy
Degrees of freedom
P
Discrepancy/df
GFI
Adjust GFI
Root mean standard of approximation (RMSEA)

Model estimated
176.430
175
0.455
1.008
0.933
0.886
0.007

Explanations
x2 is not significant
Very good, close to 1
Very good, close to 1
Very good, close to 1
, 0.033, a good result

Model comparison
Tucker-Lewis index (TLI)
Normed fit index (NFI)

0.999
0.932

Very good, close to 1


Very good results

Model parsimony
Parsimonious fit index (P close)

1.000

Very good

covariance structure has traditionally relied on a chi-square likelihood ratio test to


assess model fit, it is very sensitive to the sample size, number of items, and number of
factors in the model. Therefore, other fit indices, including chi-square/df, GFI, NFI, and
RMSEA, were used to assess overall model fit. The value of chi-square/df was found to
be 1.008, which is a good fit because the recommended range for the ratio of chi-square
to degrees of freedom is between 1.0 and 2.0 (Hair et al., 1995). The GFI assesses the
correspondence between observed and hypothesized covariance. A good GFI should be
0.90 or higher, and a good AGFI should be near 0.90 or higher. In our model, the GFI is
0.933, and the AGFI is 0.886. The NFI indicates the extent to which the model improves
fit compared to a random model, and a value greater than 0.80 is considered indicative
of good fit. Our model has an NFI of 0.932 and therefore shows a good fit. The RMSEA
value of 0.007 is well below 0.033, indicating a low discrepancy between the implied
covariance in the model and observed covariance in the data. Other indicators are
reported in Table III. In general, all these results suggest that our model fits the data
well.
Test of hypotheses
Table IV presents results of the testing of the eight hypotheses, and the final tested
path relation is described in Figure 2.
HRM and technological innovation. The first set of hypotheses (H1, H2, H3, H4, and
H5) predicted the influence of HRM (training, motivation, and control) on
tech-innovation. A high-tech firms employee training is positively related to
technological innovation (0.464, p , 0:05); thus H1 received support. H2 is also
supported, showing a negative effect between material incentive and technological
innovation (2 0.425, p , 0:05). Non-material incentive has a positive effect on
technological innovation (0.445, p , 0:1), thus supporting H3. Outcome appraisal and
control is negatively related to technological innovation (2 0.628, p , 0:01); this
support H4. Alternatively, process appraisal and control is positively related to
technological innovation (0.485, p , 0:05) supporting H5. These data suggest that for
high-tech firms, emphasizing employee training, non-material incentive and process
control can advance the firms tech-innovation, but emphasizing material incentives
and outcome control can impede the firms tech-innovation.

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Hypothesis
H1
H2
H3
H4
H5
H6
H7
H8

Path

Standardized regression weights

p-value

ET ! TI
MI ! TI
NI ! TI
OC ! TI
PC ! TI
MI ! OC
NI ! PC
TI ! FP

0.464
2 0.425
0.445
2 0.628
0.485
0.414
0.577
0.200

0.020 **
0.038 **
0.069*
0.004 ***
0.049 **
0.000 ****
0.000 ****
0.023 **

Conclusion
Support
Support
Support
Support
Support
Support
Support
Support

Notes: *p , 0:1; **p , 0:05; ***p , 0:01; ****p , 0:001

Technology
innovation and
performance
691
Table IV.
Results of the testing of
the hypotheses

Figure 2.
Final model

Motivation and control. The second set of hypotheses (H6, H7) predicted the effect of
motivation on control. There is a statistically significant positive relationship between
material incentive and outcome appraisal and control (0.414, p , 0:001), and
non-material incentive and process appraisal and control (0.577, p , 0:001); this
supports H6 and H7. These results indicate that as has been discussed above,
motivation and control have a direct effect on s firms innovation, and that motivation
also has a noteworthy effect on a firms internal control. Material incentives have a
significant effect on outcome control, and non-material incentives have a significant
effect on process control.

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692

Technological innovation and firm performance. H8 predicted the effect of


tech-innovation on firm performance. There is a positive relationship between
technological innovation and firm performance (0.200, p , 0:05), and H8 received
support. This shows that, as has been certified by many scholars, tech-innovation is
important for firms to achieve better financial performance.
Discussion and conclusion
Resource-based theory and innovation theories have confirmed the importance of both
HRM and technological innovation on a firms performance. In this study, our
contributions focus on the building of a conceptual framework that clarifies the
relationship between HRM, technological innovation and firm performance, and we
examine the effects of high-tech firms HRM on technological innovation and firm
performance in China. Drawing on resource-based theory and innovation theory, this
study demonstrates that a Chinese high-tech firms HRM has an important influence on
technological innovation, which lead to that firms superior performance. Beyond
providing a rich description of the relationship between HRM, technological innovation
and performance, this study presents several important findings.
First, we find that employee training has direct and positive effects on technological
innovation in Chinese high-tech firms. This result provides the support for
resource-based theory that continuously enhancing the quality of a firms human
resources will increases the firms competitive advantage. When a firm wants to obtain
a competitive advantage in an uncertain economic environment such as Chinas, there
is a need for higher quality human resources, which can be obtained by training all
employees of the firm. For high-tech firms in the countries with an emerging economy
such as Chinas, there are many market opportunities because of economic transitions
and institutional reforms. Thus, employee training helps high-tech firms to not only
gain technological progress through increased knowledge, but also to find new market
opportunities and to enhance their innovation ability through information exchange
and skill improvement.
Our findings show that material incentives are negatively related to technological
innovation and that non-material incentives are positively related to technological
innovation in Chinese high-tech firms. These findings support the argument of
Amabile and her colleagues (Amabile et al., 1986; Hennessey and Amabile, 1998).
Meanwhile, the latter finding is also consistent with previous research results that
found that allowance of self-growth and independence in the workplace can enhance
the technological innovation work of employees in high-tech firms (Dudeck and Hall,
1991; Gruber, 1996; Mumford, 2000).
The results of this study strongly suggest that process appraisal and control is
positively related to technological innovation, while outcome appraisal and control is
negatively related to technological innovation. Our findings reinforce the work by
DeTienne and Koberg (2002) and examine the research of Spender and Kessler (1995),
both of whom noted that process control is helpful to innovation. On the other hand,
process appraisal and control is of benefit in encouraging risk-taking actions of
employees. Thus, our research results validate the view of Mumford (2000), and also
support the research of Hitt et al. (1996) as well as Scott (1995).
This study examines the perspective that there is a close relationship between
motivation and control (Bradley and Gelb, 1981; Orpen, 1994). Research results suggest

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that material incentive is positively related to outcome control, and non-material


incentive is positively related to process control. These findings suggest that high-tech
firms need effective results measurement and appraisal when they emphasize material
incentives. When emphasizing non-material incentives, it is important to use process
appraisal and control. These findings indicate that Chinese high-tech firms should
choose effective control methods based on the employees demands and the needs of
high-tech firms to motivate employees.
In agreement with many research results (Abernathy and Utterback, 1978; Foster,
1986; Hill and Rothaermel, 2003; Tripsas and Gavetty, 2000), we further certify that
technological innovation is positively related to firm performance during the Chinese
economic transitional period. The technological innovation of high-tech firms has an
important influence on firm performance, and effective HRM can ensure sustainable
technological innovation in Chinese high-tech firms. Therefore, effective HRM can
enhance the performance of high-tech firms by increasing technological innovation.
Managerial implications
All of the above findings have useful implications for the managers in Chinese
high-tech firms. First, our study suggests that professional employee training can
develop employees knowledge. Therefore, the top managers of the high-tech firms
should further improve employee training so as to promote the firms technological
innovation. Thus, professional employee training will result in the advancement of a
firms competitive advantage and performance.
Second, the research results suggest that material incentives are negatively related
to technological innovation and that there is a positive relationship between
non-material incentives and technological innovation. The above two results also
imply that material incentives are perhaps needed for employees, but they can not
become the main means of promoting technological innovation in Chinese high-tech
firms. The top managers of Chinese high-tech firms should focus more on providing
non-material incentives to continuously improve the effect of technological innovation.
From the research results related to the relationship between the incentive and the
control, process appraisal and control should be emphasized more than outcome
appraisal and control in order to improve the technological innovation. In particular,
through the improvement of process appraisal and control, firms may excel in new
product development or new production methods. This can improve firms competitive
advantage.
Limitations and future research
Despite some contributions to the literature and certain practical applications, this
study has limitations that should be addressed in future research. First, the
cross-sectional data used in the study do not allow for causal interpretation among the
factors, although we requested that the sample firms supply data for the most recent
five-year period. Ideally, this study would have benefited from a time lag between the
measurement of the independent and dependent variables in order for a causal
relationship to be determined. We hope that this study will serve as a foundation for
new studies in the future.
A second limitation is that this study does not consider the different influences of
every HRM factor affecting different innovation types, such as radical innovation and

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incremental innovation. Because the strategy of high-tech firms is often different from
that of traditional firms, the choice of different innovation types will produce different
results. This should be a future research topic. Additionally, our findings and results
are unique to the Chinese. We hope this study serves as the basis for an effort to
sharpen understanding of the relationship between HRM, innovation, and a firms
performance in emergent economic countries.

694
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About the authors
Yuan Li is Professor in innovation management and strategic management. More than 120
papers and nine books have been published in China, and 26 research projects have been finished
as the director of the projects during last ten years. His current research interest includes choice
of innovation mechanisms, innovation in strategic alliance and strategic flexibility. Yuan Li is
the corresponding author and can be contacted at: liyuan@mail.xjtu.edu.cn
Yingbin Zhao is PhD candidate in management at Xian Jiaotong University. His current
research interests include new product development management, entrepreneurship and effect of
human resource on technological innovation.
Yi Liu is Professor in marketing department of School of Management, Xian Jiaotong
University. She received her Phd from Xian Jiaotong University. More than 60 papers and four
books have been published in China, and 16 research projects have been finished as the director
of the projects. Her current research interests include channel management, strategic alliance
control and new product development.

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