Abstract
Majority of studies have been geared towards examining the critical role of business strategy, innovation and SMEs performance in Malaysia. Current studies, however, reported contradictory results on business strategy and innovation on financial performance in different contexts. Therefore, this study claims that there should be a moderating variable is required to promote the relationship between business strategy, innovation and organizational performance. This study, therefore, has incorporated the dynamic capabilities as a moderator to improve the relationship between business strategy (differentiation strategy and cost-leadership strategy), innovation (product innovation and process innovation) and financial performance. The study aims to describe the relationship of cost-leadership strategy, differentiation strategy, product innovation and process innovation on the financial performance under the moderating role of dynamic capabilities. To establish the proposed conceptual framework, two theories were introduced: resource-based view (RBV) and dynamic capabilities (DC). The recent literature was used to obtain information on the factors that enabled the present study to establish a conceptual framework and eight propositions formulated. The moderating effect of dynamic capabilities on business strategy (cost-leadership strategy and differentiation strategy) and innovation (product innovation and process innovation) are the main theoretical contribution. Furthermore, limitations and recommendations for future research presented.
Highlights
Small and medium enterprises (SMEs) are entities that are key to a country's economic growth
Based on the conceptual framework, there is an indication of the relationship between cost-leadership strategy, differentiation strategy, product innovation, process innovation and financial performance where the dynamic capabilities can moderate the financial performance of SMEs
This review focuses primarily on the influence of moderating effect of dynamic capabilities
Summary
Small and medium enterprises (SMEs) are entities that are key to a country's economic growth. The deep understanding of the relationship between cost-leadership strategy, differentiation strategy, product innovation, process innovation and financial performance of food manufacturing SMEs is still limited, even rare by considering dynamic capabilities as moderating variable. This study, identifies the relationship between cost-leadership strategy, differentiation strategy, product innovation, process innovation, organizational performance and moderating role of dynamic capabilities. The study found out those SMEs that employed cost-leadership strategy has a significant relationship on organizational performance. Past studies of [10] investigate 278 manufacturing SMEs in Nigeria reported that cost-leadership strategy has a significant relationship with business performance. [18] found positive product innovation and financial performance among SMEs in Indonesia's food manufacturing sector. In line with previous studies, [9] found a positive link between product innovation and business performance among SMEs in South-Eastern Europe
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