Abstract
It is believed that for small and medium-sized enterprises (SMEs), innovation is most important to deliver performance. Literature indicates that the most significant antecedents of innovation are learning orientation, transformational leadership, knowledge management, and innovative culture. Further, a research gap exists regarding the mediating effect of innovation for the relationships among these antecedents and SMEs performance in the Pakistan context. The scope of research is limited to SMEs and is novel and significant in this regard that it examines the mediatory role of innovation for the relationships between learning orientation, transformation leadership, knowledge management, innovative culture, and performance for Pakistani SMEs. This research employed quantitative research design and collected primary data from 150 SMEs (including retailers, hotels, restaurants, and boutiques) of Southern Punjab region. Area sampling technique was used wherein areas were selected randomly. Respondents were top managers/owners of SMEs. This research concludes that innovation does play a mediatory role. It contributes and strengthens transformational leadership theory, resource-based theory, theory of the growth of firms, and dynamic capabilities perspective. The study also contributes by providing practical implications and suggestions to the policy makers and managers of SMEs. It suggests that managers must develop an innovative culture to promote innovation and attain high performance. Further, effective knowledge management guarantees innovation and superior performance of the organization. Regarding, learning orientation, it suggests that information must be obtained from and communicated to all the employees for fostering innovation and high performance. Finally, the transformational leadership style must be used by leaders for enhancing the creativity of employees and improving SME performance.
Highlights
An organization’s performance is its ability to attain its goals efficiently and effectively, and if it does so, it could become successful in achieving long term competitive advantage (Ricardo & Wade, 2001). Tidd (2001) argues that companies could better exploit market opportunities by adopting innovation
For indirect impact, the p-value is 0.001 and t-value is 3.470. These results show an insignificant direct effect of transformational leadership on performance, while a significant indirect effect and lead to the conclusion that innovation plays the role of a full mediator variable for this relationship
This study strengthens transformational leadership theory (Burns, 1978), according to which managers using transformational leadership style have the ability to motivate employees through charismatic speech and intellectual stimulation for developing innovative thinking among employees that could help them in demonstrating better performance
Summary
An organization’s performance is its ability to attain its goals efficiently and effectively, and if it does so, it could become successful in achieving long term competitive advantage (Ricardo & Wade, 2001). Tidd (2001) argues that companies could better exploit market opportunities by adopting innovation. Innovation's intervening nature of effect between innovative culture, knowledge management, transformational leadership, learning orientation and performance of SMEs has not been studied earlier in one research design which is a significant research gap. The present study supports dynamic capability perspective-DCP (Teece, Pisano, & Shuen, 1997) and suggests that learning orientation leads to better exploitation of knowledge for operating in fast moving competitive forces and environment It strengthens RBV (Amit & Schoemaker, 1993) as well as Penrose’s (1959) theory of the growth of firms as it suggests that a learning-oriented organization could lead to a higher degree of innovation leading towards higher performance. It is hypothesized that: H4: Innovation mediates the relationship between learning orientation and organization performance
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