The purpose of this paper is to establish if indeed human resource management (HRM) practices drive organizational learning capability and, in turn, fortify small and medium enterprises (SMEs) performance. The purpose of mediation analysis is to see if the influence of organizational learning capability is stronger than the direct influence of HRM practices on SME performance.
Data was collected from managerial-level employees of SMEs using questionnaire survey. This study used the Partial Least Squares approach to structural equation modeling to test the hypothesized relationship, as it involves the relationships among multiple variables.
Of the HRM practices, incentive and compensation and team working seem to be important for firm performance. As for organizational learning capability, only openness and experimentation and managerial commitment have a direct positive impact on firm performance. The results of the mediation analysis established organizational learning capability as a mediator, albeit partially.
Although prior research revealed a positive relationship between HRM practices and performance, this study illuminates the black box in-between, as few studies have established its importance in the relationship between HRM practices and firm performance. The findings provide more consensus on the ongoing debate on the linkages among HRM practices, SME performance and organizational learning capability.
