Modeling the significance of strategic orientation for innovation capabilities and enterprise performance: evidence from Ethiopian SMEs

Abstract

There is a lack of studies that analyze simultaneously how customer, competitive, and entrepreneurial orientations affect SMEs’ innovation capabilities and performance. Hence, the main goal of this study is to examine the significance and enhance understanding of strategic orientation in relation to the innovation capabilities and performance of small and medium-sized enterprises (SMEs). This study used an explanatory research design and multi-stage sampling to gather primary data from the study area. The data and research hypotheses of the suggested structural regression model were examined using structural equation modeling (SEM), based on empirical data from 321 Ethiopian SMEs operating in Hawassa city. The SEM results indicate that small and medium-sized enterprises with a higher level of strategic orientation can ensure superior performance. The findings also indicate that innovation capabilities partially mediate the relationship between strategic orientation and SMEs performance. The study makes a valuable theoretical and practical contribution to the application of resource-based and dynamic capabilities theories within the context of SMEs. Furthermore, this study suggests that SMEs can leverage strategic insights to address the real-world challenges of entrepreneurship and innovation while offering practical solutions. Hence, strategic perspectives that spread acquired knowledge and new ideas throughout internal decision-making processes ultimately enhance SMEs’ innovation capabilities and performance.