Role of HPWS in Facilitating Radical Innovation: Mediating Role of Human Capital in the Banking Industry of Pakistan

Abstract

This study aims to assess the impact of High-Performance Work Systems (HPWS) on radical innovation
in the banking sector. Insights from the Resource-Based View (RBV) and the Ability-MotivationOpportunity (AMO) Framework are used to explore the role of human capital as a mediator between
HPWS and radical innovation. Using a simple random sampling technique, 209 responses were received
from respondents in the banking sector firms of Pakistan. Structural Equation Modelling was used for
data analysis. The results indicate the significance of HPWS as a driver of radical innovation. The study
contributes to theory by extending the understanding of the ‘black-box’ (i.e., the transmission
mechanism between systems of HRM and radical innovation). This study focuses on radical innovation
as an alternative performance outcome of banks instead of financial outcomes, thus contributing to
theory. Insights from our study are relevant to managers because it shows that HPWS implementation
helps banks attract, develop, and retain talent and facilitates the development of human capital that is
critical for enabling the radical innovation capability of banks. This study has several limitations, e.g.,
executing a cross-sectional study design, using the quantitative approach, and employing only six
bundles of HR practices

Key Words: HPWS, HRM, HR Systems, Human Capital,
Innovation, Banking Sector