Impact of Knowledge-Based HRM Practices on Organizational Performance: Mediating Effect of Intellectual Capital

Introduction

In the 21^st century, organizations are facing various fluctuations, instability, competitiveness and rapid shifts in the market (Obeidat et al., 2016). Today knowledge-based resources have been increasingly recognized as valuable competitive tools and are contributing in greater Organizational Performance (OP). Strengthening OP is the most important aspect for any organization. It majorly depends on its valuable Human Resource Management (HRM) as it is the individuals who design and support the entire organizations’ system. Also, it depends highly on the Intellectual Capital (IC) which includes the knowledge and expertise that employees possesses, information systems, processes and databases which an organization own, and relations that it maintains with its external stakeholders (Edvinsson and Malone, 1997; Bontis, 2004).

Regardless of the form of industry, knowledge and incorporation of elements of IC in a firm have become the sustenance tactic for long term existence (Hsu and Sabherwal, 2011). In any organisation, the intellectual operations that take place are very human-centric. Employees have the ability to work dynamically and to suggest innovative way out to the difficult market challenges. The successful implementation of HRM practices hold a significant position throughout this process. For the present study, knowledge has been considered as “that knowledge which is related to company’s customers, products and services, operational procedures, competitors and job associates” (Pradhan et al., 2017). In addition, accumulation, growth and utilisation of knowledge creates a base for any intellectual capital, as IC requires a certain level of knowledge creation. In knowledge-intensive sectors, such as services, value is added primarily from the intangible assets rendered by employees in the form of innovations and expertise. Therefore, in this dynamic and knowledge-intensive time, successful knowledge-based HRM (KHRM) practices will promote the accumulation of IC.

Indian service sector companies are knowledge-driven and are directly engaged in knowledge formation, growth, retention and distribution, and therefore, contribute the highest in the country’s economic growth by creating a learning environment (Gupta and Raman, 2020). The distinctive skills and competitive value of India built by knowledge-based services makes it the world’ innovative emerging market. The service sector in India, funded by many government policies, has the ability to open a multi-trillion dollar market that can establish cooperative development for all nations (Deloitte, 2018). However, the Indian service sector is facing major challenges because of Covid-19 outbreak and otherwise, due to increasingly changing business environment. This growing competition has pushed many service companies to identify ways to retain existing consumers and attract new consumers. Firms to stay competitive must focus on improved product or services, consumer engagement, and firms’ performance which can be achieved by incorporating adequate HRM practices.