Does Job Security Help Innovation in Small Firms? : Commitment-Based Human Resource Practice and Innovation in Software Firms in Seoul, Korea

The primary goal of this study is to elaborate and test of how commitment-based HR practices affect the innovative capacity of firms. While a remarkable wealth of knowledge has been accumulated on what accounts for small firm innovation including various internal and external factors, a void still remains in our understanding on how a firm’s human resource management efforts make a difference. This study attempts to fill this hole in the literature by empirically testing which human resource practices are positively related to the innovative capacity of entrepreneurial high technology firms. In particular, this research is interested in the effects of job security on the innovative capacity because retaining knowledgeable and skilled workers is critical, for an entrepreneurial firm’s success. In doing so, this study builds its theoretical framework on commitment-based human resource management. This approach argues that a certain set of HR practices induce employees’ attachment and voluntary contribution to a firm are positively related with firm’s performance improvement and innovation. Those practices include selective hiring of high human capital; incentive policies including high wages, job security, off-site training; and work place design. Using data from a survey of small-sized software development firms in Seoul conducted by Korea Internal Promotion Agency in 2004, this study performs a logistic regression to determine predictors of innovation in small software firms. The results show that the existence of high skilled workers (high human capital); and job security for managers (measured by the percentage of full time managers) and non-software technicians are highly correlated with innovation. Job security for software technicians is not significant. These results reflect the reality that under highly competitive markets and rapidly changing technological environments, the existence of committed managers who can identify new marketable products and the right time to launch them on the market might be more critical than technological prowess itself. However, other HR incentives such as high compensation (measured by annuated average wage), off-site training and prime office location, which are typically positively related to a large firm performance, are not significantly related to innovation. This study contributes to the small firm innovation related literature by confirming that job security is positively related to the innovative capacity of a firm. This study also demonstrates how a contextualized approach helps understanding the specific conditions that govern the effects of HR practices