Innovation Capability for SME Biomass Industry Performance: Perspectives of HRM, OC, KMC in Industry 4.0

Innovation Capability for SME Biomass Industry Performance: Perspectives of HRM, OC, KMC in Industry 4.0

Teoh Ming Fang (Universiti Sains Malaysia, Malaysia), Lee Heng Wei (UOW Malaysia KDU Penang University, Malaysia) and Rajendran Muthuveloo (Universiti Sains Malaysia, Malaysia)
Copyright: © 2020 |Pages: 25
DOI: 10.4018/978-1-7998-2577-7.ch006


Industry 4.0 exerts great pressure on the organization today to innovate its business model in order to stay competitive. This study examines the positive and indirect effect of human resource management, organizational culture, knowledge management capabilities on organizational performance, with the mediating effect of organizational innovation capability among small and medium-sized enterprise (SME) in biomass industry in Malaysia. In addition, this study integrates resource-based view (RBV) and dynamic capabilities theories to investigate how the organization utilize its resources and capabilities to enhance organizational performance. Data were collected using survey questionnaire from biomass SMEs located in Malaysia. Structural equation modelling (Smart PLS 3.0) was used to test and analyze the data. The findings reveal that knowledge management capability and organizational culture exert a positive influence on organizational innovation capabilities. Similarly, organizational innovation capabilities also found to positively affect organizational performance.
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SMEs Biomass Industry (Malaysia) in Industry 4.0

In 2018, Malaysia’s small and medium enterprises (SMEs) contributed to gross domestic product (GDP) at 38.3% (RM521.7 billion) and total exports at 17.3% (RM171.9 billion) (Department of Statistics Malaysia, 2019). It shows that SMEs play a significant role in the economic growth of Malaysia. To prosper and survive in Industry 4.0, SMEs in the biomass industry require new paradigms to improve its internal resources, capabilities and organizational performance. Table 1 depicts the definition of SME in Malaysia (SME Corporation Malaysia, 2019).

Table 1.
Description of Small and medium enterprise (SME)
SectorAnnual Sales TurnoverFull-time Employees
Manufacturing≤ RM50 million≤ 200
Service≤ RM20 million≤ 75

Source: SME Corporation Malaysia, 2019

Unlike other countries, Malaysia has abundant of sustainable and accessible biomass resources, such as empty fruit bunches, palm kernel shell, rice straw, wood biomass, municipal solid waste, manure, oil palm trunks and able to produce biomass output such as biopolymers, bio-energy, bio-fertilizer, bio-composites, bio-chemical (Malaysia Industry-Government Group for High Technology (MIGHT), 2013). Biomass is a carbon-neutral fuel that can assist Malaysia to reduce carbon emission intensity per unit of GDP at 45% in 2030 (World Energy Council, 2018). The renewable energy from biomass can generate electricity, reduce the dependency on 90.5% of imported coal (Hamzah, Tokimatsu, & Yoshikawa, 2019), replace fossil fuel, diesel and diminish greenhouse gas emissions in Malaysia (Mekhilef, Barimani, Safari, & Salam, 2014).

Japan, Korea, and China are the leading importer of biomass pellets (Malaysia Industry-Government Group for High Technology (MIGHT), 2013). In the year 2020, the European Union plan to consume more than 50% of biomass energy and South Korea will import up to 80% of pellets into their country (Malaysian Industry-Government Group for High Technology (MIGHT), 2014). To fulfill the global demand, Malaysian SMEs in the biomass industry should improve organizational innovation capability and performance by using digital technologies (Ministry of International Trade and Industry (MITI), 2017).As industry 4.0 comprises of cyber-physical system (CPS), internet of things (IoT), cloud computing (Iqbal & Nawaz, 2019) so SMEs in the biomass industry should incorporate these technologies to digitize the manufacturing and organizational processes. CPS is the integration of physical components, algorithms, communication and control systems that help the biomass manufacturing SMEs to have autonomous production processes and real-time control on the machines (Moeuf, Pellerin, Lamouri, Tamayo-Giraldo, & Barbaray, 2018; Vaidya, Ambad, & Bhosle, 2018; L. Da Xu, Xu, & Li, 2018). IoT technology refers to real-time communication using physical component, for instance, radio-frequency identification (RFID), mobile devices and global positioning system (GPS), in which these devices can connect with cellular network, Wi-Fi to assist managers in biomass SMEs to make decentralize decision, trace any error and changes earlier, and support improvement initiatives on operation processes (Moeuf et al., 2018; L. Da Xu et al., 2018). Cloud computing allows biomass SMEs to communicate, share information, collaborate with stakeholders globally (Moeuf et al., 2018). This can strengthen the relationship with customers, suppliers and business partners, seeking new customers worldwide and aid in penetration into a new market. Digital twins is a simulation modeling that supports new product development process, indicate precise productivity and maintenance projection based on the valid data (Rodič, 2017). Long term value creation and capture by biomass SMEs supersede the substantial capital on the investment of digital technologies. This will improve productivity and streamline the production processes to maximize the utilization of production capacity.

However, biomass SMEs faced many challenges in this Industry 4.0 era. The challenges include a lack of adequate ICT infrastructure and software, protection on confidential information, and integration process with producers, suppliers, and customers (L. Da Xu et al., 2018). Moeuf et al., (2018) conducted systematic bibliographical research on 23 case studies, found that SMEs not actively exploit digital technologies in Industry 4.0, only a few SMEs using cloud computing and RFID technology. Qualitative research by Müller, Maier, Veile, & Voigt (2017) posit that challenges of the cooperation among SMEs to purchase technology include lack of trust and coordination efforts among SMEs partners, reluctant to share the confidential information and prefer autonomy in making a purchase decision. In Malaysia context, SMEs in biomass industry has low entry barriers, in which new entrants can quickly enter biomass industry and compete with existing organizations, high dependency on imported and patented technology (not able to reproduce the required technology in Malaysia), fluctuate pricing of biomass resources and needs to follow the technical, quality, sustainability standards in foreign countries (Malaysia Industry-Government Group for High Technology (MIGHT), 2013). Another challenge includes an inconsistent supply of biomass due to different maturities of the oil palm trunks (Agensi Inovasi Malaysia, 2013). Most biomass SMEs in Malaysia is not able to produce higher-value biomass product because they are lack of expertise, engineering and technical know-how on product design, advanced technology, differentiation strategy and branding (Malaysia Industry-Government Group for High Technology (MIGHT), 2013).

In the organizational trajectory, traditional management practice is not effective in Industry 4.0. Biomass SMEs can improve their internal resources and capabilities to seize ample opportunities, response to external threats and achieve more significant market share before competitors using similar ways. Even though biomass SMEs have limited resources yet facing many challenges, Moeuf et al., (2018) advocate that SMEs have high flexibility to improve their innovation capability as compared to a large organization with rigid and centralize structure. In the contemplation to improve organizational innovation capability required effective human resource management, organizational culture, and knowledge management capabilities, which can lead to superb organizational performance.

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