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Building innovation capacity: the role of human capital formation in enterprises - a review of the literature


29 March 2011

ISBN 978 1 921809 66 8 print; 978 1 921809 65 1 web


This literature review examines the role of human capital formation in building innovative capacity in firms. The aim of the review is to develop a model of human capital development factors to be used as a basis for a larger research project where the factors that develop innovation capacity in enterprises will be investigated. The review finds that human capital stimulus factors are developed through appropriate human resource management practices, the learning and development system (in the enterprise) and the tertiary education system. The review also finds that the three key issues in developing human capital for innovation in enterprises are people, knowledge and creativity management.


About the research

This paper explores the wide range of literature that links innovation with human capital development. From this review, the authors develop a model of the principal factors contributing to human capital. The model will form the basis of an empirical investigation into developing innovation capacity in medium-to-large Australian enterprises in the next phase of the research project.

Key messages

  • Innovation performance at the enterprise level depends on the ability to acquire, develop and exploit new knowledge. Human capital and technology are the principal factors driving innovation capacity.
  • Human capital development is stimulated by appropriate human resource management practices and two ancillary services: the learning and development system, which must go beyond training and create learning cultures in enterprises; and the tertiary education system, which is playing an increasingly important role in the new learning and development systems of enterprises.
  • The bundling of human resource practices is important in all three of the key factors involved in developing human capital for enterprise innovation: people management, knowledge management and creativity management.
  • Developing innovative capacity in the context of human capital formation is a complex process and requires a balanced human resource management approach utilising cooperative employee team involvement and individual self-expression to achieve 'creative ecologies'.

Tom Karmel
Managing Director, NCVER


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1.46 MB
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