Innovation and well-organized human resources (HR) are the fundamental driving forces of growth in terms of productivity and sales performance of a business organization [1,2]. Schumpeter’s research (1934, 1942) first examined the relationship between innovation and business success, and it remains an important theoretical and conceptual topic that has captivated the interest of researchers for many years. Turnover was affected by human resource management practices [3]. Another study reported a significant association between HR practices such as recruitment, training, participation, performance appraisal, and remuneration and firm performance [4]. Researchers spent considerable time studying this topic due to the importance of the policy-making process. However, a closer look at the literature reveals that the impact of innovations on firm performance is still inconclusive [5,6]. It is challenging to extrapolate the relationship between innovation and human resources across contexts and businesses due to its complicated and unique nature. In light of this, the present study examines this link using a special-survey-based dataset from a developing nation.

Innovation plays a critical role in the performance of firms, as it enables them to adapt to changing market conditions, respond to customer needs, and stay ahead of competitors. Sustainable innovation, in particular, can have a positive impact on a firm’s performance by reducing costs, improving efficiency, and enhancing brand reputation. Several studies have shown that sustainable innovation positively affects a firm’s financial performance. For example, a study by Alshehhi and colleagues [7] explores the impact of corporate sustainability on corporate financial performance. Similarly, a study by Sun and colleagues [8] investigates the impact of intelligent manufacturing (IM) on environmental, social, and governance (ESG) performance using data from 2149 listed manufacturing firms in China from 2009 to 2021. Moreover, sustainable innovation can also have a positive impact on a firm’s non-financial performance measures, such as its brand reputation and employee satisfaction. For example, a study by Xu and colleagues [9] found that firms that implemented sustainable innovation practices had a stronger brand reputation and were more attractive to potential employees. In summary, innovation, particularly sustainable innovation, is critical to the performance of firms [10,11].

The HR-performance nexus has been the subject of extensive research in the field of human resource management, leading to the development of various theories and approaches. Some of the most prominent theories include the resource-based view (RBV), which emphasizes the role of human resources in creating and sustaining competitive advantage, and the human capital theory, which focuses on the importance of investing in employee development to enhance their skills and knowledge. In recent years, there has been a growing interest in the role of HR in driving innovation performance. This has led to the emergence of various approaches, such as the High-Performance Work System (HPWS), which aims to promote employee engagement and empowerment through the use of innovative HR practices such as performance management, training, and career development. The HPWS approach is grounded in the belief that by creating a work environment that encourages creativity and innovation, organizations can enhance their competitive advantage and achieve superior performance.

HR can contribute to innovation performance in several ways. First, by recruiting and selecting employees with the right skills and experience, organizations can build a talented and diverse workforce that is capable of generating new ideas and solutions. Second, by providing training and development opportunities, HR can help employees acquire the skills and knowledge necessary to innovate and create value. Third, by fostering a culture of collaboration and teamwork, HR can encourage employees to share their ideas and work together to solve complex problems. Finally, by implementing performance management systems that reward innovation and creativity, HR can incentivize employees to contribute to the organization’s innovation performance. Overall, the HR-performance nexus has led to a better understanding of the role of human resources in driving organizational performance, including innovation performance. By adopting innovative HR practices and approaches, organizations can build a workforce that is capable of generating new ideas, creating value, and sustaining a competitive advantage in today’s rapidly changing business environment.

The empirical literature has sparked scholarly discussions on innovation and business performance, which appear to point in several directions [17]. Although Schumpeter’s earlier research suggested that start-ups and small businesses were important sources of innovation [18], their later book Capitalism, Socialism, and Democracy, published in 1942, changed the focus to the competitive advantage of large firms over start-ups [19]. Numerous studies contend that development and change are essential for business growth in today’s cutthroat markets. It is essential to comprehend innovation with respect to human resources in order to comprehend the theoretical underpinnings of research and development. Moreover, other researchers stated that good HR practices foster improved company performance and bring about high profitability [20,21]. According to The Oslo Manual, innovation is based on four types; product, process, marketing, and organization innovation. However, this study considers the product, process, and marketing innovation [22]. Furthermore, the impact of innovation activities on the firm performance is also discussed in the Oslo Manual [22]. The positive relationship between firm-level innovation and firm performance rests on the Schumpeter theory of innovation (1934) [18,19].

HRM practices have a significant impact on the business performance of small- and medium-sized enterprises (SMEs), as demonstrated by Pratibha and Katyayani [2]. The research by Bakator et al. [3] suggested a beneficial relationship between HRM practices and overall firm performance. Most of the articles published at the time suggest that there is unquestionably a connection between effective, innovative HRM practices and other firm performance metrics. A vast amount of research suggests that development and change are essential for business growth in today’s increasingly competitive markets. It is essential to comprehend innovation in the context of human resources in order to comprehend the theoretical underpinnings of research and development.

Additionally, research conducted on the effects of innovation on the performance of Malaysian manufacturing SMEs found that process and product innovation positively impact firm performance [4]. Research has also shown that innovation significantly and favorably affects business or firm performance [5]. In addition, the study demonstrated how SMEs can boost their performance through increased product and process innovation. According to Calisken, Kehoe, and Wright, effective HR procedures boost business performance and lead to significant profitability [20,21]. Rousseau studied the relationship between innovation and company performance and concluded that combining product and process innovation results in better performance gains than product innovation alone [6]. Another interesting work by [23] presented findings that most manufacturing SMEs in Klang Valley have adopted eco-management innovation and eco-logistic innovation as crucial capabilities for their businesses during the pandemic. However, due to the challenges faced by these SMEs during the pandemic, eco-product innovation was found to have an insignificant relationship with sustainable business performance. Aljuboori and colleagues [24] employed a stratified sampling method wherein 262 participants’ responses from the focused manufacturing firms were obtained and analyzed via the structural equation model (SEM) and resource-based view (RBV). The results show that the relationship between intellectual capital and firm performance is strengthened due to the mediation of innovation capability, thereby gaining higher competitive advantages. It was asserted that the present comprehensive analyses may offer useful information and guidance to the academics, owners/managers, and policymakers involving the impact of intellectual capital development towards improving the Malaysian SMEs performance.

Performance, compensation, and rewards at a company are all positively correlated [17]. Product innovation has a substantial and positive impact on annual sales growth, whereas process innovation is likely to have a significant negative impact on the annual sales growth or profitability of firms in Vietnam, Malaysia, and Indonesia. The findings show that introducing new products can improve a company’s performance, but adopting new or improved methods can have a significant effect. Furthermore, compared to low- or medium-tech businesses, high-tech industries benefit more from product innovation in terms of business success. Process innovation may be detrimental to businesses engaged in low- or medium-tech sectors. The introduction of new products positively affects the firm’s performance, according to Varis and Littunen [25]. Process innovation, as demonstrated by Murat and Baki, has positive effects on firm performance [26], including firm growth [27], firm productivity [28,29], as well as industrial development [30]. It was determined that compensation and rewards aid in the smooth and efficient operation of organizations, helping them achieve their objectives and boost business performance [18]. An attractive and good compensation package is important to motivate employees to increase their performance, resulting in increased organizational productivity/firm performance. Work was conducted on the connection between HRM practices and employee performance and the results report that the HRM practices such as reward and compensation, performance appraisal, employee involvement, training, and career planning have a positive impact on employee performance that will ultimately increase firm performance [19].

The componential theory of creativity, according to Amabile, is a thorough picture of the social and psychological components necessary for a person to generate creative work [31]. The argument is based on the definition of creativity as devising innovative concepts or outcomes that are appropriate for a certain goal. This theory states that any creative response needs four components, three of which are internal to the individual (domain-relevant skills, creativity-relevant processes, and intrinsic task motivation), and one of which is external to the individual (the social environment in which the individual operates). Managers of organizations rely on the tools and techniques developed from this theory to stimulate innovation and creativity in their organizations Amabile claims that innovation is creativity plus implementation. Moreover, creativity is the production of novel ideas by individuals and innovation to the successful implementation of those ideas.

On the other hand, servant leadership theory is a leadership philosophy in which the leader’s primary goal is to serve. In fact, it is a leadership exercise grounded on the credence that workers should be held as equals and have a say in the organization they work for [2,32]. Servant leadership is a leadership style that emphasizes serving others and prioritizing their needs, growth, and development. The concept of servant leadership was first introduced by Robert K. Greenleaf in 1970 [33], and has gained increasing attention in recent years as a viable approach to effective leadership. In terms of innovation and business performance, servant leadership has been shown to have a positive impact. When leaders prioritize the needs of their employees and focus on their growth and development, a more innovative and collaborative culture can be created. This can lead to increased creativity, improved problem-solving skills, and a greater willingness to take risks and experiment with new ideas.

It showed that servant leadership can have a positive impact on HR innovation performance. For example, a study by Nathan et al. [34] found that servant leadership positively influenced HR innovation by fostering employee creativity, providing support for innovation, and promoting a positive organizational culture. Similarly, a study by Liden et al. [35] found that servant leadership is positively associated with employee innovation behavior and creativity.

Overall, the role of servant leadership in promoting HR innovation performance appears to be related to the ways in which it supports and empowers employees to contribute their unique skills and knowledge to the organization. By creating a culture of collaboration and trust, servant leadership can encourage employees to take risks, experiment with new ideas, and develop innovative approaches to HR practices and processes. Therefore, it can be argued that servant leadership plays a crucial role in facilitating HR innovation performance by empowering and engaging employees and creating a positive organizational culture that supports innovation. Several other studies [36,37,38] provide further evidence for the positive relationship between servant leadership and HR innovation performance and shed light on the underlying mechanisms and boundary conditions of this relationship.

Furthermore, when employees feel valued and supported, they are more likely to be engaged and motivated in their work, which can lead to improved performance and productivity. This, in turn, can lead to better business outcomes, such as increased revenue, profitability, and customer satisfaction. The servant leadership theory suggests that by prioritizing the needs of employees, leaders can create a more innovative, engaged, and productive workforce, which can ultimately lead to improved business performance.

Organizational Innovation [22] involves applying new methods to the organization’s internal and external business practices. Varis and Littunen [25] claim that the success of a company is positively impacted by the launch of new items. Along with firm growth [26], firm productivity [28,29], and industrial development [30], process innovation genuinely has a positive effect on firm performance. According to Huselid, HRM practices positively affect firm performance by affecting work attachment, firm financial performance, and productivity. The paper made a significant contribution to the field of human resource management with its groundbreaking research on the link between HR practices and organizational performance. The findings of Huselid’s seminal study continue to be cited as evidence of the importance of strategic HR practices in improving firm performance. According to Huselid, the adoption of high-performance work practices can have a significant impact on employee attitudes and behavior, ultimately leading to improved organizational performance. His research challenged the prevailing view that HR practices were merely a cost center, demonstrating instead that they could generate significant returns for organizations that invest in them.

Most approaches presented in the literature focus on examining the input (HRM practices) and output (company performance) of HR systems, without necessarily understanding the underlying mechanisms that link the two. There are some standard dilemmas faced while studying the impact of HRM practices on company performance which are not covered in the literature very well.

Regarding the first dilemma of whether the impact of HRM practices is additive or configurational, research has shown that the impact of HRM practices is likely to be configurational, meaning that the effectiveness of HRM practices depends on their fit with other practices and the broader organizational context. For example, the impact of employee participation on performance may depend on whether other HRM practices, such as training and development, are also in place [39].

Regarding the second dilemma of whether the impact of HRM practices is universal or situational, research has shown that the effectiveness of HRM practices is likely to depend on the specific organizational context and business strategy. For example, a study by Huselid [40] found that the impact of HRM practices on performance varied depending on the industry and the level of competition.

Regarding the third dilemma of how to measure severity correctly and which practices considering and why, research has shown that there is no single "best" way to measure the impact of HRM practices on performance and that the specific measures used may depend on the research question and the organizational context. For example, measures of employee turnover may be appropriate for certain research questions, while measures of productivity or financial performance may be more appropriate for others [41].

Generally, firm performance is defined by sales per worker, innovative goods and services production, and different profitability ratios. While depending on the data availability, the performances of employees are defined by some Likert scale variables or a special kind of statistical index consisting of the number of errors, absents, and failures to meet deadlines [42]. All these studies show that the innovation-led-HR policy and strategy are vital in boosting the firm performance. These studies are either related to developed economies or other developing economies.