Innovation Management Practice And Firm Performance

1.0                                                       INTRODUCTION

1.1       Background of the Study

The complex and competitive environment wherein present firms work combined with technological advancement and globalization requires businesses to devise strategies to empower them gain upper hand over rivals. To achieve this, there is need for management to determine the necessary competences (Mwangi, 2021). Innovation is one the various competences firms develop to enable them outsmart competitors. Kombo and Letting (2019) aver that innovation is linked to business performance and has emerged as a major source of competitive advantage. Firms operate in an environment that is turbulent and constantly changing, due to shifting customer preferences, globalization, investor demands, market deregulation, and increased competition. Nonetheless, the climate presents difficulties that won’t be quickly settled, because of their intricacies. This has made organisations to create and embrace vital methodologies to manage evolving needs (Bragg, 2018). The fundamental tool for expanding and entering new markets is innovation management; and firms develop different techniques to manage innovation, and in order to gain competitive advantage (Fouad et al., 2018). Nowadays, the future of organizations is determined by the introduction of new and improved products. The application of novel ideas to products, procedures, management practices, and marketing, or any other aspect of the organization’s activities that leads to improved value, is referred to as Innovation management practices (Cascio, 2017). However, unless managed with precision, the revenue generated by innovation is insufficient, and the role that innovation plays in assisting businesses to achieve growth objectives is frequently unclear.

A second argument attributes Chinese innovation management to the country’s ability to compete successfully on the elements of creativity and cost (Economist, 2017). This ability to make established products at dramatically lower cost is dubbed “frugal innovation” in broad terms (Zeschky, Widenmayer & Gassmann, 2021). In this model, innovation is primarily concerned with redesigning products, using existing technology in imaginative new ways, and applying mass production techniques across the value chain. Frugal innovation not only addresses the unmet or underserved market needs of customers at the bottom of the pyramid but it also provides an impetus for innovation in other forms that is made possible by the expansion of markets. While the phenomenon of shanzhai innovation that emerged in China in the 1980s has been seen as part of the “frugal innovation” model (Economist, 2017), more recent studies consider shanzhai to be a much broader phenomenon than just the cheap copying of goods. For example, Zhu and Shi’s (2017) research points out that shanzhai manufacturing is typified by the rapid production cycle of the products – concept to delivery is often achieved within weeks. Keane and Zhao (2018) view shanzhai innovation as an example of rapid prototyping. Liu, Xie and Wu (2020) emphasize the importance of modularization and the evolution of value chains in shanzhai innovation that significantly lower the technological threshold of entering markets such as the mobile phone business, promote disruptive innovations, and accelerate latecomers’ accumulation of knowledge and technology. In more specific terms, the evolution of value chains leads to an outcome in which some firms in possession of better technologies can refocus their business on the design and production of chipsets and software, while others with other advantages such as market information can reallocate their efforts towards cosmetic design, differentiation, or marketing.

Organizational performance is a subjective measure of an institution’s ability to use assets from its business model to generate revenue (Sufian & Chong, 2016). It is a general measure of overall financial capacity over a specified time period and can also be used to compare organizations in the same industry, such as banking, communication, and insurance, among others (Al-Tamini, 2018). Organizational performance can be estimated in various ways and the unit of estimation utilized ought to be taken in conglomeration. Measurements include the institution’s liquidity, solvency, and financial efficiency as well as revenue from operations, operating income, total unit sales, profitability, and capacity to repay debt. Performance is the primary concern for the firm that refers to the firm’s success and the achievement of its objectives. Some researchers tried to investigate the ways of improving the firm performance and some studied the predictors of firm performance (FP) (Mahmood & Hanafi 2017). Moreover, Brush and Vanderwerf (2020) and Carton and Hofer (2018) observed that most of the research on firms also have attempted to use performance as a dependent variable. FP means different things to different scholars and different organizations. This could be because of different interpretations that are given to what is regarded as successful or effective performance (Carton, 2024). Another contributing factor is the fact that organizations adopt different measurements in assessing their performances such as non-financial and financial measures. Performance measures are indicators of business organizational success (Kennerley & Neely 2017). Additionally, entrepreneurial orientation (EO) is one of the important resources that influence FP (Lumpkin & Dess 2018). EO involves the process, actions and intentions of the entrepreneurs or managers in promoting their businesses and creating opportunities. As a result, EO refers to the firm’s ability to take risky exercises, decisions and be more proactive in taking actions, exploit new opportunities and innovate. Therefore, EO can simply be defined as the strategic orientations (SO) that business firms exhibit when exploring new market opportunities (Lumpkin and Dess 2018). As suggested by Wiklund and Shepherd (2017), EO is a firm’s strategic capability to capture a particular aspect of methods, decision-making, and business practices. Firms with strong EO can use and discover new market opportunities. Hence, it has paramount importance for both the survival of business firms and their performance (Polat & Mutlu 2020). Many researchers argued that entrepreneurial behaviour has a considerable impact on the achievement of firms regardless of their size (Miller 2019).

Similarly, organizational culture (OC) has received much attention from scholars in the recent past (Denison & Mishra 2017). This might be because of certain assumptions that are widely held about its influence on FP and effectiveness. Researchers have postulated that OC could be responsible for the successes or failures that some firms/organizations have recorded (Ahmad 2020). OC is also believed to be responsible for why some organizations perform better than others in the marketplace (Ojo 2018). OC is viewed as an internal organizational variable, which has an influence on FP; it can be managed, observed, and measured (Geldenhuys 2016).