Building workforce innovation capacity in Australia: A dynamic economic framework for evaluating two strategies

Innovation in Australia has become the top national priority in strengthening competitiveness of firms and generating strong economic development. This paper investigates the building of workforce innovation capacity through human resource management (HRM) practices to foster innovation in Australia. Two HRM strategies are identified as having operated in Australia over 40 years. One is a ‘soft’ HRM strategy based on greater worker autonomy; a strategy which dominated in the 1970s and 1980s. The other is a ‘hard’ HRM strategy based on routine worker performance measurement which has increasingly become more relevant since the 1990s and into the 21st Century as the basis for stronger competitive advantage. A dynamic discrete choice model is developed to provide a method for capturing and explaining variations in the relationship between the two strategies and innovation. This approach reframes the economics of innovation using a unique ‘containment of structure and contingency of agency’ spectrum to explain innovation-successful HRM practices which can account for both internal firm management policies and external-to-the-firm effects of government economic policies. For this reason, this study provides a historical understanding that links effective HRM strategy to building innovation capacity from both firm and government levels. Such experience can assist building a stronger Australian Innovation System so often demanded