Association between technological innovation and firm performance in small and medium-sized enterprises: The moderating effect of environmental factors

Abstract

Purpose

In developing countries, numerous small- and medium-sized enterprises (SMEs) must innovate because of their scarce resources. This study aims to address the ambidextrous innovation (radical and incremental) associated with firm performance on the SMEs and investigate the moderating effect of environmental factors on the relationship between technological innovation and firm performance.

Design/methodology/approach

The authors formulate a path model with the variables to investigate the impacts of the two different innovation strategies and their joint effects on firm performance. Meanwhile, they hypothesized that external environmental factors – market dynamism, labour availability, business cost and competitive hostility – moderate the association of radical and incremental innovations with firm performance. The validity of the proposed model was evaluated using a structural equation modelling approach. Confirmatory factor analysis was used to evaluate the convergent validity of the constructs.

Findings

The authors find that positive association between radical innovation and firm performance; it shows that the radical innovation strategies are positively related to firm performance in SMEs. They also find that the relationship between radical innovation and firm performance has moderated by environmental factors. Second, they find that the incremental innovation strategies have a negative impact to firm performance, and the relationship between incremental innovation and firm performance has no moderated by environmental factors.

Practical implications

This paper suggests that the managers of SMEs must involve in technological innovation, and offer fourth main implications above. In particular, the authors forewarn SMEs’ managers of the necessity of generating that the relationship between radical innovation and firm performance has moderated by environmental factors, there are approaches fourth items around.

Originality/value

This study highlights the crucial importance of the mediating role of environmental dynamism when examining the relationship between ambidexterity (radical and incremental innovations) with firm performance; firms can perceive environmental factors and develop technological innovation strategies to enhance business performance.

Citation

Wang, D.S. (2020), "Association between technological innovation and firm performance in small and medium-sized enterprises: The moderating effect of environmental factors", International Journal of Innovation Science, Vol. 11 No. 2, pp. 227-240. https://doi.org/10.1108/IJIS-04-2018-0049