Innovative Behavior and Firm Competitive Advantage: The Moderating Effect of Environmental Dynamism
Data publikacji: 14 paź 2021
Zakres stron: 159 - 170
DOI: https://doi.org/10.2478/fman-2021-0012
Słowa kluczowe
© 2021 Olawale Fatoki, published by Sciendo
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Omri (2015) remarks that small, medium, and micro enterprises (SMMEs) generally provide more employment than large businesses in developing countries. SMMEs account for 66% of all employment in South Africa. The number of SMMEs in South Africa grew by 4.4% and the number of employees in the sector increased by 29% between 2018 and 2019, indicating a big shift in employment from large to small enterprises (SME Landscape Report, 2019).
Despite the growth in the number of SMMEs and their significant contribution to employment, the sector is negatively affected by South Africa's challenging economic situation. The sector's share of total turnover reduced from 39.5% in 2018 to 39.2% in 2019 (Small Enterprise Development Agency, 2019). In addition, the failure rate of SMMEs is very high in South Africa. The challenges faced by SMMEs in South Africa include access to finance, access to markets, and a highly competitive business environment (Small Enterprise Development Agency, 2019; SME Landscape Report, 2019). The South African economy is characterized by a low level of economic growth, a low level of investment, and a high level of unemployment, and these factors have negatively affected consumer confidence and the consumption of goods and services (Pasara and Garidzirai, 2020).
Guttel, et al. (2017) and Surty and Scheepers (2020) point out that competitive pressures, changing customer demands, disruptive technological advancements, and globalization ensure that the business environment has become increasingly dynamic and is characterized by high velocity and hyperturbulence. Bennet and Lemoine (2014) describe the business environment as volatile, uncertain, complex, and ambiguous (VUCA).
Hou, et al. (2019) describe environmental dynamism (ED) as the rate of change and degree of instability in the environment. Businesses including SMMEs are open systems and are affected by dynamism in the environment (Permana, et al., 2017). ED places significant demands on businesses because routine solutions become unworkable and it is essential to respond to changes in the environment. In addition, although businesses in developed countries do experience a certain degree of ED, the scale is lower compared to what is experienced in developing countries (van Uden, et al., 2019; Surty and Scheepers, 2020).
In the highly dynamic environments that businesses operate, competitive advantage (CA) becomes fleeting rather than sustainable (Jiao, et al., 2011). According to the resource-based view (RBV), businesses need to deploy valuable resources in order to sustain CA (Barney, 1991).
Guttel, et al. (2017) point out that businesses need to cope with dynamic and constantly evolving environments. One of the factors that can help SMMEs to cope with ED and sustain CA is innovative behavior (IB). SMMEs are typically more flexible than large businesses and their simple organizational structure is more conducive to innovation (Omri, 2013).
According to Jiao, et al. (2011) and Ting, et al. (2012), the question of how firms gain CA is an important issue in strategic management and the environment has long been considered as an important factor. Therefore, there is the need to consider the moderating effect of the environment in the relationship between strategy and firm performance. This study has two objectives: (1) to investigate the relationship between IB and CA of SMMEs and (2) to examine if ED moderates the relationship between IB and CA.
The study will be significant for the following reasons.
First, the issue of the impact of the business environment, particularly the direct or indirect effect of ED on firm performance, is a subject of continuing academic debate and empirical findings are inconclusive as to the direction of the relationship. Based on mixed empirical results, more research is needed (Chittithaworn, et al., 2010; Okeyo, 2014; Struwig, et al., 2019).
Second, empirical studies examining the effects of contextual variables such as ED in the relationship between IB and CA in the context of SMMEs are scarce.
Third, studies that have used ED as a moderator in the relationship between organizational capabilities and firm performance have been conducted mainly in developed countries. This narrow focus limits theoretical completeness and there is the need to validate such a relationship in the context of SMMEs in developing countries (Li and Liu, 2014).
Developing countries are typically characterized by high levels of environmental uncertainty because of the dynamic business environment, thus providing a good ground to validate organizational theories. South Africa depends on research and knowledge developed in the western context, although its environmental challenges are fundamentally different (Nkono, 2015; Jacobs and Maritz, 2020).
This study will contribute to the literature on the link between innovation, ED, and CA. The findings will assist small businesses in designing strategic management policies that can help to improve their performance.
The study is structured as follows. Section 2 gives a review of the literature and develops hypotheses. Sections 3–6 focus on the research methodology, results, discussion, and conclusion, respectively.
Innovation can be described as a new idea, product, device, or novelty. It is a multi-stage process that a firm uses to transform ideas into new products, services, or processes to compete and differentiate itself in the market place (Baregheh, et al., 2009). Innovation can also be described as the commercial application of knowledge in new ways or new ends to achieve CA (Roper and Love, 2017). Innovation is new knowledge employed in the process of production. Knowledge sharing leads to the exchange of expertise to create new or improve existing products and services. Knowledge positively affects innovation and leads to sustained CA through the design of new products and services or the improvement of existing products and services (Śliwa and Patalas-Maliszewska, 2016; Castaneda and Cuellar, 2020). West and Farr (1990, p. 9) define IB as “the intentional introduction and application within a role, group or organisation of ideas, processes, products or procedures.” IB includes the generation of ideas linked to creativity and implementation of the ideas by businesses (Purc and Lagun, 2019). IB can also be defined as all the actions of individuals that lead to the generation, processing, and implementation of new ideas that can improve the ways of doing things. These include new products and services, new technologies, and new processes or procedures at work that aim to improve firm effectiveness and success. IB includes three interrelated tasks that are non-sequential. These are idea generation, idea promotion, and idea realization by a manager or an employee (Omri, 2014; Bos-Nehles, et al., 2017).
Wang (2014) and Ceglinski (2017) point out that CA is achieved when a firm is able to develop or acquire attributes or actions that enable it to outperform its competitors. CA makes a firm to be more profitable than its competitors in areas such as technological advancement, product quality, and market share. CA is the extent of the increased level of attractiveness of what a firm offers compared to its competitors that in the process of value creation increases incomes over costs. CA lies in the distinct features and dimensions of a firm that helps it to offer better services to customers (Hosseini, et al., 2018).
Duncan (1972), in a seminal work on organismal environments and perceived environmental uncertainty, describes the environment of a firm as the entirety of social and physical factors that individuals in an organization take into in their decision-making behavior. The characteristics of the environment include stability/dynamism, simplicity/complexity, and munificence/hostility (Dess and Beard, 1984).
In a dynamic versus stable environment, dynamism is characterized as unpredictability, or the uncertainty of the actions of consumers, product offerings, and the rate of change and innovation in an industry.
A stable environment has little or no unexpected or sudden change. However, stable environments are not common because of the changes in society, technology, and other spheres (Li and Liu, 2014). The features of dynamic environments include major and rapid changes in technology, consumer preferences, and producer offerings.
Competitor actions and customer preferences are harder to predict in a dynamic environment compared to a stable environment due to the nature of changes in the environment. Therefore, ED can be defined as the rate of change in the environment that a firm experiences over time in terms of its speed and strength (Seo, et al., 2020)
The link between IB and CA can be explained by the RBV. Teece, et al. (1997) remark that the foundation of RBV goes back to the 1960s and can be linked to the work of Penrose (1959) and Andrews (1971). However, Barney (1991) clarified the link between resources, capabilities, and sustainable CA.
The RBV focuses on how a firm uses resources and capabilities to reach a position of sustained CA and a higher level of performance. According to the RBV, a firm is a collection of distinctive resources and capabilities that must be optimally employed by the management. The RBV argues that firms are heterogeneous in terms of capabilities, competencies, and resources and their long-term success depends on how they efficiently and effectively utilize these capabilities in the dynamic marketplace. In addition, for a resource to contribute to sustainable CA, it must be rare, valuable, inimitable, and nonsubstitutable (Barney, 1991).
Bos-Nehles, et al. (2016) remark that innovative work behavior of employees (or managers) involves the development and implementation of new ideas for products, technologies, and work methods with a significant effect on organizational success. Managers have a major role in stimulating employee IB, and pro-innovation attitude of managers positively affects the adoption and implementation of innovative efforts. Omri (2015), in a study that focused on SMMEs in different sectors of the Tunisian economy, investigates the effect of IB of managers on firm performance.
The findings indicate a significant positive relationship between IB and firm performance. The IB of managers fosters an innovative culture and encourages the creation and introduction of new products and technologies, leading to superior performance. Chatzoglou and Chatzoudes (2018), in a study on the manufacturing firms in Greece, find that innovation positively affects CA.
IB leads to the creation and introduction of new products and services that deliver superior value to the customers of a firm, especially when the competitors cannot provide the same products and services.
IB improves business processes and reduces delivery time and costs and can help to implement new strategies to counter negative business environments.
IB allows a firm to develop products and services that provide differentiated competitiveness in terms of function and quality. This enables the firm to attract new customers, retain existing customers, secure market-leading positions, and obtain CA (Lee and Yoo, 2019). Consequently, it is hypothesized that:
H1:
Jiao, et al. (2011) note that the moderating effect of ED explains the issue of how a firm's internal resources and capabilities are matched to the external environment and ED is the most important contingent variable. According to Boyd, et al. (1993), innovation strategy has a significant positive impact on performance.
In addition, the relationship between innovation strategy and performance can be moderated by environmental conditions. Baron and Tang (2011), drawing on a sample of 99 entrepreneurs in the United States of America, investigate the moderating effect of ED in the relationship between creativity and innovation at the firm level. The findings indicate that ED has a positive effect in the relationship.
Pérez-Luño, et al. (2014) examine the moderating effect of ED in the relationship between entrepreneurial orientation and innovative tendency in Spain. The findings indicate that ED positively moderates the relationship between risk-taking and innovative tendencies, but the moderation effect is negative in the relationship between proactivity and innovative tendencies.
Nandakumar, et al. (2010), in a study based on manufacturing firms in the United Kingdom, find that ED acts as a moderator in the relationship between business-level strategy and firm relative competitive performance, but not on other performance measures (return on sales and return on assets).
Zhu, et al. (2020) investigate the moderating effect of ED in the relationship between inventory stickiness and the survival of new manufacturing small firms in China. The findings indicate that ED positively moderates the inverted U-shaped relationship between inventory stickiness and survival of new small firms.
The literature is not conclusive about the moderating effect of ED in the strategy–performance relationship. Mohammad (2019), in a study that focused on 22 deposit banks in Nigeria, finds that the moderating role of ED in the relationship between strategic change and performance is insignificant.
Jacobs and Maritz (2020) examine the moderating effect of environmental turbulence in the relationship between ambidexterity and sustainable performance. Data was collected from profit-seeking firms in the manufacturing, business services, finance, hospitality, retail, and wholesale sectors in South Africa.
The findings indicate that the moderation effect of environmental turbulence is insignificant. Omri (2014), in study that focused on small businesses in Tunisia, find that the moderating effect of ED in the relationship between IB and performance is insignificant. Senyard, et al. (2015), in a longitudinal study done in Australia, examine the moderating effect of ED in the relationship between bricolage and firm performance of early-stage firms.
The study has two hypotheses:
the moderating effect of ED in the relationship between bricolage and firm emergence (the results indicate a positive, but statistically insignificant moderating effect), and whether ED would moderate the relationship between bricolage and sales as a measure of performance (the results reveal a negative, but insignificant moderating effect).
Wang (2016) points out that in a low dynamic environment, the rate and direction of changes are predictable, industry structure is relatively stable, market boundary is easily clear, and key players are easily identifiable. Firms can depend on existing knowledge and market experiences to make decisions. In a highly dynamic environment, changes are more frequent and firms cannot rely on existing knowledge because reliance on past knowledge leads to obsolescence. Therefore, creativity and innovation are needed to obtain CA. Omri (2014) argues that firm performance not only depends on innovation, but also on environmental conditions.
A dynamic environment offers a firm many opportunities concerning market demands, and innovative organizations can achieve better performance in volatile environments. ED may push the managers of a firm to depend on their creative abilities to generate and implement creative ideas and solutions through new products and processes for improved performance.
Consequently, it is hypothesized that:
H2:
The study utilized the quantitative research design. Data was collected from the respondents through the cross-sectional survey method. The sample population was SMMEs in South Africa. Before the actual survey, a pilot study was conducted with the owners/managers of 30 SMMEs in Johannesburg.
Two academics in the area of Strategic Management also examined the questionnaire. Based on the results of the pilot study, minor adjustments were made in developing the final version of the questionnaire.
The survey was conducted between September 2019 and February 2020. The questionnaire was divided into four sections: demographic variables, IB, ED, and CA. The study focused on the SMMEs in Pretoria and Johannesburg in the Gauteng Province of South Africa. The Gauteng Province is the economic hub of South Africa and many SMMEs are located in the province. The number of employees was used to classify the SMMEs. According to the National Small Business Act of South Africa (2019), a micro enterprise will have between 0 and 10 employees, a small enterprise between 11 and 50 employees, and a medium-sized enterprise between 51 and 250 employees. Because of the difficulty in obtaining a formal sampling frame of SMMEs in the study area, the convenience sampling method was used to select the participants in the survey. This is consistent with previous studies on SMMEs in South Africa (Matchaba-Hove, et al., 2015).
Managers/owners of SMMEs were formally contacted through telephone calls and e-mails to solicit their participation. A combination of email and self-administered questionnaire methods was used to collect data from the participants.
Two trained field agents assisted in the data collection process. Confidentiality and anonymity were assured, and the names of the SMMEs and of their owners/managers were not requested or included in the questionnaire. The participants in the survey were reminded weekly to complete the questionnaire through follow-up phone calls and emails. If no response was received after 2 months, it was treated as a nonresponse.
The questionnaire was adapted from previous studies with acceptable psychometric properties. The cover page of the questionnaire contained information about the objectives of the study and that participation is voluntary. The study employed hierarchical regression for data analysis and three control variables, size, age, and industry, were added.
Cronbach's alpha was used to measure reliability. Cronbach's alpha coefficients of 0.79, 0.85, and 0.77 for IB, ED, and CA, respectively, indicate the reliability of the scales (Nunnally, 1978) Appendix depicts the items that were used to measure the constructs.
Four hundred questionnaires were distributed and 140 returned. The biographical characteristics in the questionnaire included the age of owner, level of education, role in firm (owner/manager), gender, age of firm, industry, and size.
The biographical characteristics of the survey participants are presented in Table 1.
Biographical characteristics (
| Biographical characteristics | Number |
|---|---|
| Age of respondent (years) | |
| Below 20 | 0 |
| 20–30 | 24 |
| 31–40 | 62 |
| 41–50 | 32 |
| 51–60 | 22 |
| Above 60 | 0 |
| Level of education of respondent | |
| Below matric | 0 |
| Matric | 39 |
| Above matric | 101 |
| Gender | |
| Male | 79 |
| Female | 61 |
| Role of respondent in the firm | |
| Manager | 71 |
| Owner | 69 |
| Age of firm | |
| Less than 1 year | 8 |
| 1–5 years | 39 |
| 6–10 years | 63 |
| 10–15 years | 36 |
| Above 15 years | 2 |
| Industry | |
| Manufacturing | 36 |
| Services | 18 |
| Retail and wholesale | 51 |
| Accommodation | 35 |
| Size (number of employees) | |
| 0–10 | 31 |
| 11–50 | 83 |
| 51–250 | 26 |
Table 2 presents the results of the descriptive statistics and correlation. The means and standard deviations of the control variables and the constructs examined by the study are presented. Table 3 illustrates the results of the regression analysis on the impact of IB on CA.
Descriptive statistics and correlation (
| Variable | Mean | Standard deviation | Size | Age | Ind | IB | ED | CA |
|---|---|---|---|---|---|---|---|---|
| Size | 2.15 | 1.01 | 1 | |||||
| Age | 2.20 | 0.92 | 0.49 | 1 | ||||
| Industry | 1.95 | 0.59 | −0.081 | −0.208** | 1 | |||
| IB | 3.58 | 0.89 | 0.31 | 0.24 | 0.31** | 1 | ||
| ED | 3.12 | 0.81 | 0.18 | 0.12** | 0.26* | 0.41** | 1 | |
| CA | 3.35 | 0.77 | 0.16 | 0.29 | 0.19 | 0.53* | 0.61** | 1 |
p < 0.01,
p < 0.05
Results of regression analyses (
| Variable | Competitive advantage | |||
|---|---|---|---|---|
| Model 1 |
Model 2 |
Model 3 |
Model 4 |
|
| Age | 0.148 | 0.049 | 0.051 | 0.042 |
| Size | 0.142 | −0.052 | 0.076 | −0.071 |
| Industry | 0.146 | 0.102 | 0.107 | 0.102 |
| IB | 0.644* | 0.649* | 0.701 | |
| ED | 0.074 | 0.079 | ||
| IB × ED | 0.013 | |||
| R2 | 0.062 | 0.214 | 0.216 | 0.221 |
| Adjusted R2 | 0.055 | 0.209 | 0.211 | 0.227 |
| R2 change | 0.154** | 0.156** | 0.172** | |
| F | 7.220 | 74.204 | 55.288 | 47.108 |
p < 0.01,
p < 0.05
The first model (model 1) illustrates the relationship between control variables (age, size, and industry) and CA. Model 2 portrays the relationship between IB and CA. The results indicate that IB has a significant positive relationship with CA (β = 0.644, p < 0.01). Therefore, Hypothesis 1, which states that there is a significant positive relationship between IB and CA, is supported.
The study used the procedures of Sharma, et al. (1981) on the testing of moderation. Using the hierarchical regression analysis, the study tested for the moderating effect of ED, as depicted in Table 3.
As pointed out, model 1 shows the effect of control variables and model 2 depicts the relationship between IB and CA. Model 3 adds the moderator ED and shows that the change in R2 is significant. The interaction between IB and ED is added in model 4.
The interaction between IB and ED to CA is insignificant (β = 0.013, t = 0.215). Hypothesis 2 of the study is not supported.
The study investigated the effect of IB on the CA of SMMEs. In addition, the study examined the moderating effect of ED in the relationship between IB and CA. Based on a dataset of 140 respondents, the results indicated that there is a significant positive relationship between IB and CA.
Hypothesis 1 of the study is supported. The results of the study suggest that the IB of managers is a key driving force of CA through the discovery of new and better ways to compete in an industry and the implementation the new ideas in the market. Managers’ IB helps a firm to generate and implement ideas that lead to innovation. This enables the firm to attract new customers, retain existing customers, and obtain CA (Purc and Lagun, 2019). The results are consistent with previous empirical findings. Omri (2015) finds a significant positive relationship between managers’ IB and firm performance.
Chatzoglou, et al. (2018) find that innovation positively affects CA through the creation and introduction of new products and services that deliver superior value to customers. Firms can promote dynamic capabilities and CA by adopting an innovation strategy in a dynamic environment (Jiao, et al., 2011).
The findings indicated that the moderating effect of ED in the relationship between IB and CA is insignificant. Therefore, hypothesis 2 of the study is not supported. The findings of the study suggest that ED does not always moderate the relationship between firm strategy and performance. The results are consistent with the findings of some empirical studies that used ED as a moderator in the strategy–performance relationship.
Mohammad (2019) finds that the moderating role of ED in the relationship between strategic change and performance is insignificant. The findings of the study by Jacobs and Maritz (2020) indicate that the moderation effect of environmental turbulence in the relationship between ambidexterity and sustainable performance is insignificant.
Omri (2014), in study that focused on small businesses, finds that the moderating effect of ED in the relationship between IB and performance is insignificant. Senyard, et al. (2015) find that the moderating effect of ED in the relationship between bricolage and sales as a measure of performance is insignificant.
The study investigated the effect of IB on the CA of SMMEs in South Africa. In addition, the studies examined the moderating effect of ED in the relationship between IB and CA. The results indicated that IB has a significant positive relationship with CA.
The moderating effect of ED is not significant. The study developed a theoretical model that incorporated the moderating effect of ED in the relationship between IB and CA in the context of SMMEs in a developing country.
As pointed out by Li and Liu (2014), western-generated theories and empirical findings may not be completely applicable to developing countries with greatly different socioeconomic conditions. Therefore, findings from the African perspective can provide implications for the firms operating in developing countries. The findings have some managerial implications.
First, the study confirms the significance of IB as a driver of CA. Therefore, it is important for the managers of SMMEs to invest in IB to sustain CA. Thus, the provision of training on innovation to management and employees is important.
Management must foster an environment that support the generation of new ideas by employees and the coordination of such ideas to improve products and services. The findings indicated that the moderating effect of ED is insignificant. Therefore, the management should not excessively focus on ED, but on innovation in order to address environmental changes. The study has some limitations and proposes some areas for further study.
First, the use of convenience sampling leads to sampling bias. Therefore, the sample may not be representative of the population and care should be exercised in generalizing the findings of the study.
Second, the survey was cross-sectional in nature. Therefore, causality cannot be definitely established. Therefore, other studies can employ a longitudinal study design. In addition, the mediating effects of market orientation and entrepreneurial orientation in the relationship between IB and CA can be examined by other studies.
| Construct | Item | Source | Response category |
|---|---|---|---|
| Perceived environmental dynamism |
Environmental changes in our market are intense. Product or service in our industry changes quickly. The acts of competitors are difficult to predict. The technology in our industry progresses quickly. It is difficult to predict the change of customer needs. |
Justin, Jansen, den Bosch and Volberda, 2006; Li and Liu, 2014 | 1 strongly disagree 5 strongly agree |
| Innovative behavior |
Search out new working methods techniques. Generate new ideas on how to improve our products and services. Generate original solutions to problems. Provide new solutions to old problems. Make appropriate plan for the implementation of new ideas. Endeavour to eliminate obstacles in the process of idea implementation. |
Omri, 2013 | 1 strongly disagree to 5 strongly agree. |
| Competitive advantage | Compared with our competitors, our firm has:
higher profit growth rate higher sales revenue growth rate lower operating costs better product and service quality higher market share |
Wu and Chen, 2012; Li and Liu, 2014; | 1 strongly disagree to 5 strongly agree. |