Complementarities between governance and human capital: A comprehensive model of public employees’ innovativeness based on evidence from Saudi Arabia

Abstract

In an age of austerity, specifying how governance and innovation interact is an important issue on the agenda of policymakers and scholars when discussing the role of government in dealing with ‘wicked problems’. This trend of public sector spending cuts continues unabated in G20 countries, such as the US, Brazil and Saudi Arabia, and is driven by the concurrence of austerity measures and increasing citizen demands for quality public services. As a way to tackle this dilemma, governments have specifically sought, explicitly or implicitly, to urge public sector organisations to become more effective, which calls for innovation in public organisations, which is inextricably linked to performance. For example, Saudi Arabia launched an unprecedented major economic transformation, Vision 2030, which is considered a huge challenge to the public sector, which employs over two-thirds of Saudi nationals, to be innovative. Although several scholars have tried to prescribe ways to make the public sector more innovative, the theoretical frameworks used explained the effects of governance in unexpectedly parochial terms, and also neglected human capital dynamics, offering scarce insights into why some organisations thrive through innovativeness while others struggle. This study, which extends beyond the traditional high-performance models, examines whether the emphasis on the complementarities between a holistic approach of governance (rather than HRMP) and human capital can drive up human capital’s value to produce a relative advantage; in this case, innovativeness. This study breaks from the traditional, agency conflict between stakeholders and managers and uses a combination of theories (social capital theory, stakeholder theory and institutional theory) to describe where and how organisations’ governance drives human capital value creation towards innovativeness. This study suggests that different governance mechanisms may work together in a complementary manner, rather than as substitutes, towards higher organisation performance. The conceptual framework uncovers previously overlooked circumstances, such as underestimating the strategic value of the public organisations' human capital, and offers a new approach to the conceptualisation of governance by developing a cooperation (rather than conflict) model, whereby multi governance mechanisms are intertwined. This research adopts a quantitative methodology, along with the positivist philosophical approach, to investigate the hypothetical relationships within the conceptual framework. To analyse and validate the data, this study applies the structure equation model by using the Statistical Package for the Social Sciences (SPSS) AMOS V. 23. Based on data gathered from 713 public employees in Saudi Arabia, the findings indicate that public employees’ innovativeness is driven by an organisation's complementarities between governance and human capital. In particular, the findings show that the amount of damage caused to trust within public organisations by a poor ethical work climate is greater, whereas good ethical work climate contributes to employees’ trust which in turn positively facilitates the effect of psychological ownership on subsequent innovativeness. The findings also suggest that satisfied internal needs are key capabilities that organisations must possess in order to increase the capacity for innovation. Moreover, this study finds a variety of networks modes which provide opportunities for public employees to innovate. These research outcomes yield several theoretical and practical implications. As a preliminary study, designed to address a complicated phenomenon in the public sector, the results of this study should be considered in the light of some limitations.