Abstract: At the beginning of the new round of industrial revolution, Chinese manufacturing enterprises need to stop and think: Enterprises should pursue low-cost strategy or differentiation strategy; How does HRM system, human capital and knowledge management play an complex mediating role when strategies guide innovation and enterprise performance; How can human capital and knowledge management stimulate enterprise's incremental innovation and radical innovation and improve enterprise's performance. Answering the above development problems at strategic level and resource level, visual pathways should be first explored in the research paradigm of "external environment, strategy, resources, innovation and enterprise performance" based on the line of sight theory and help managers and employees to "pursue shared goals and work in unison" around the enterprise development strategies. Chinese manufacturing firms usually implement low-cost strategy rely on order production with low-cost advantage of labors, and their products have less innovation and quality assurance, therefore hardly establish a brand image. In the twinge of transformation and upgrading, manufacturing firms can succeed in reform only by implementing differentiation strategy and promoting radical innovation, and then can be survived and form a core competence in the fierce competitive markets. Take an example of questionnaire data from 154 small and medium-sized manufacturing firms in Tianjin's industrial parks, this paper examines the line of sight of innovation inversely driving strategic transformation by human capital resource. Results indicate that there is one strategic line of sight which are "environmental competitiveness, differentiation strategy, radical innovation, and firm performance". The two resource line of sights are "differentiation strategy, HRM system, human capital resource, incremental innovation, radical innovation, and firm performance" and "differentiation strategy, HRM system, knowledge sharing, and firm performance". The three line of sights point out the specific path how to achieved strategic transformation and innovative change to Chinese manufacturing firms.

Key words: innovation, strategy, human capital, line of sight, manufacturing firms