Abstract: SMEs often make up for lacking in normative and detailed plans, systems and organizational arrangements with remaining some human resource slack, but the effectiveness of these practices is questionable. Basing on characters of the knowledge owned, human resource slack can be sorted into unembedded ones, low-embeded ones and high-embedded ones, and funcitons of them on enterprises need more classification studies. This paper analyses the action mechanisms of SMEs’ human resource slack from perspective of product innovation, and takes SMEs in manufacturing industries as the samples to testify hypothesis promoted. It confirms that, unembedded human resource slack promote negative error management climate, and then reduce product innovation, while low-embeded human resource slack benefit product innovation and local searches play mediating role therein. It also find that executive shareholders can effect the action of unembedded human resource slack on innovation positively, while influence the ones of high-embedded human resource slack negatively. These conclusions confirm the heterogeneity and contextualization of human resource slack, and can provide some instruction for SMEs’ practice.