Mediating Effect of Innovation on the Relationship between Entrepreneurial Orientation and Organizational Performance of SMEs in Southern Province, Sri Lanka

G T T K Pushpasiri,E K Jayampathi

doi:10.4038/wjm.v12i2.7530

Abstract

Entrepreneurial Orientation is widely used to determine the entrepreneurial behavior of an entrepreneur. Although, the Entrepreneurial Orientation (EO) is recognized as a key determinant, yet there are many inconsistencies in the nexus between EO and Organizational Performance (OP). Organizational innovation was considered as the mediating variable to address the empirical gap. The study was based on small and medium scale manufacturing enterprises established in Southern Province of Sri Lanka. 240 questionnaires were administered for the purpose of primary data. A strong positive relationship between entrepreneurial orientation and organizational performance was confirmed by the study among the manufacturing SMEs in southern Sri Lanka. The study underlined entrepreneurial orientation as one of the main elements of organizational capability to achieve competitive advantage, growth, and success. More, the study confirms an indirect effect in the nexus between EO and OP via organizational innovation. Practitioners are advised to understand the capability of organizational innovativeness and proactiveness. Also, entrepreneurs and strategic formulation bodies are needed to create an innovative entrepreneurial culture to enhance entrepreneurial capabilities and minimize the potential risk of entrepreneurs.

Highlights

Small and medium scale businesses are playing a dramatic role in the economic development of any country
It can be assumed that the reliability of all measures considered to evaluate the study variables are satisfactory
Innovation which was considered as the mediator of the study reported 0.824 of Cronbach's Alpha value and organizational performance recorded a 0.912 of reliability

Summary

Introduction

Small and medium scale businesses are playing a dramatic role in the economic development of any country. According to the National Policy Framework for Small and Medium Enterprises (SMEs) Development in Sri Lanka (NPFSME) (2015), The Government of Sri Lanka recognizes small and medium scale enterprises (SMEs) as the backbone of the economy due to the contribution SMEs to regenerate and accelerate the economic development of the country. It accounts for more than 75% of the total number of enterprises are SMEs, provides 45% of the employment opportunities and contributes to the 52% of the GDP by the SME sector (NPFSME, 2015). Every definition of SMEs is subjected to criticism and there is no generally accepted definition (Gajanayake, 2010)

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