Harnessing HR Dynamics: Key to Competitive Advantage and Sustainability in Small and Medium Enterprises

Abrar Talal Rizq () and Musrrat Parveen ()
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Abrar Talal Rizq: King Abdulaziz University, Jeddah, Saudi Arabia
Musrrat Parveen: King Abdulaziz University, Jeddah, Saudi Arabia

Access Journal, 2025, vol. 6, issue 1, 217-241

Abstract: Background: Small and medium-sized enterprises (SMEs) play a critical role in driving innovation and maintaining competitive advantage in dynamic markets. Objective: The aim of this research proposes that how HR strategies directly influence dynamic capabilities, firm performance, and innovation, ultimately fostering sustainability-oriented innovation. By aligning HR practices with strategic goals, SMEs can achieve long-term competitiveness and contribute to sustainable development. Methods/Approach: Data were collected from SMEs in five regions of Saudi Arabia using convenience sampling. Online surveys were distributed to top and middle managers from January to April 2024. Of 500 questionnaires distributed, 448 responses were received, with 52 discarded due to incompleteness, missing values, or inappropriateness. We used SPSS 25 and PLS-SEM 4.0 to test the hypothesis, evaluate reliability, validity, and conduct path analysis for direct, indirect, and mediating effects using the product coefficient approach. Results: The results show that HR strategies have medium impact on dynamic capabilities (Q2 = 0.258, Q2 effect = medium) and firm innovation (Q2 = 0.247, Q2 effect = medium), and having larger impact on firm performance (Q2 = 0.539, Q2 effect = Large), competitive advantage (Q2=0.350, Q2 effect=Large) and sustainability oriented innovation (Q2=0.450, Q2 effect=Large). Additionally, the SRMR value (0.077) and NFI value (0.904) confirmed the model's good fit. HR strategies directly enhance dynamic capabilities, firm innovation, and performance, indirectly impacting competitive advantage and sustainability-oriented innovation in SMEs. Conclusion: It highlights the importance of aligning HR practices with strategic goals to foster innovation and ensure long-term competitiveness in dynamic markets. These insights can guide top and middle managers in various SME sectors.

Keywords: HR Strategies; dynamic capabilities; firm innovation; sustainability; competitive advantage; firm performance; small and medium enterprises; quantitative methodology; PLS-SEM Software (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:aip:access:v:6:y:2025:i:1:p:217-241

DOI: 10.46656/access.2025.6.1(12)

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