Unlocking the Potential: The Impact of Innovative Capability on Process, Product, and Market Innovation and Firm Performance

Abstract

This research study aims to investigate the role of innovative capability in relation to process innovation, product innovation, and market innovation and how they lead to firm performance. In the context of Pakistan, this research is vital as it can guide IT companies in understanding how to improve their innovative capability and therefore their performance in terms of process, product, and market innovation. Data was collected from the employees of software houses in Lahore, Pakistan, using convenience sampling. A structured research questionnaire was designed based on the validated scales. There were a total of 54 items to measure the 8 constructs (Market orientation, Entrepreneurial orientation, customer orientation, innovative capability, process innovation, product innovation, market innovation, and firm performance). By understanding the link between innovative capability and firm performance, companies can improve their ability to introduce new products, services, and marketing practices that meet the needs of their customers. All the relationships have been accepted with p-value less than 0.05, meaning that they are statistically significant. The t-value of each relationship indicates that they are all significant as well, with values greater than 2. Additionally, the beta value also indicates that the strength of all the relationships is positive, in other words, all of the predictors (MO, EO, CO, IC) have positive correlations with their respective criterion variables (PI, MI, PrI, FP). Overall, the mediation analysis revealed significant relationships between innovative capability (IC) and the outcome (FP) through the mediating variables of process innovation (PrI), product innovation (PI), and market innovation (MI). The findings of this study can also be used as a tool to help practitioners and researchers in different industries and across different countries understand how they can align their business strategy with innovative capabilities to achieve better results. Finally, the research results can serve as a basis for future research in the field, providing a foundation for the development of new theoretical models and techniques for measuring and enhancing innovative capability. This research on “innovative capability” and its impact on a company’s performance and ability to create new products and enter new markets can have a significant impact on society by helping businesses to be more competitive and efficient, leading to economic growth and potentially creating new jobs. Additionally, advancements in products and processes can also improve the overall quality of life for consumers. These findings are based on the specific sample used in this particular study and more research would be needed with other control and moderating variables in the specific context of Pakistan. Furthermore, the generalizability of these results may be limited, as this study might not have captured the entire population of IT firms operating in Pakistan.