Influence of Strategic HRM and Entrepreneurial Orientation on Dynamic Capabilities and Innovation in Small- and Medium-Sized Enterprises

In small- and medium-sized enterprises (SMEs), adopting a strategic human resource management (SHRM), approach can improve dynamic capabilities and promote greater innovation. However, most research on this topic is theoretical and focuses on large firms with well-established formal and mature human resource management systems and access to significant resources. Using a resource-based view framework, we investigate how entrepreneurial orientation (EO) enhances the SHRM–dynamic capabilities relationship in SMEs. Using time-lagged data from 456 SMEs in Australia, our results confirm that SHRM has an indirect positive association with innovation through its impact on dynamic capabilities. Additionally, EO has an indirect positive association with innovation through its impact on dynamic capabilities. Our results also show that EO moderates the positive relationship between dynamic capabilities and innovation such that the relationship becomes stronger as EO increases. This study’s results have theoretical and practical implications for the role of SHRM and EO in developing dynamic capabilities and innovation in SMEs.