International Journal of Academic Research in Business and Social Sciences

search-icon

Effects of Innovation Capability and Environmental Dynamism on the Relationship between Entrepreneurial Leadership and Innovation Performance in the SMEs Service Industry

Open access
This paper explores the link between entrepreneurial leadership (EL) and innovation performance (IP) in the service industry. Using the resource-based view (RBV) and dynamic capabilities view (DCV) as theoretical foundations, the study examines the mediating role of innovation capability (IC) and the moderating role of environmental dynamism (ED) in this relationship. A survey of 321 middle-level managers in the SME service sector was conducted to test the hypotheses, employing SMART-PLS structural equation modeling. Results show that EL directly and indirectly affects IP through IC mediation, but no evidence was found for the moderating role of ED. This research contributes to the understanding of how entrepreneurial leaders influence innovation performance and highlights the importance for SME owners and managers to foster and apply entrepreneurial leadership skills.
Abdalla, S. S. A., & Nakagawa, K. (2022). Entrepreneurial Leadership, Supply Chain Innovation, and Adaptability: A Cross-national Investigation. Operations Research Forum, 3(1), 23. https://doi.org/10.1007/s43069-022-00135-x
Abdul Halim, H., Ahmad, N. H., & Ramayah, T. (2019). Sustaining the Innovation Culture in SMEs: The Importance of Organisational Culture, Organisational Learning and Market Orientation. Asian Journal of Business Research. https://doi.org/10.14707/ajbr.190059
Abdulsamad, A., Ali, N. A., Mahomed, A. S. B., Hashim, H., Jandab, A., & Al-Sharif, A. M. (2020). The Importance of Entrepreneurial Orientation’s Dimensions in Influencing the Organizational Performance of Food and Beverage SMEs. Advances in Social Sciences Research Journal, 7(12), Article 12. https://doi.org/10.14738/assrj.712.9289
Afsar, B., & Umrani, W. A. (2019). Transformational leadership and innovative work behavior: The role of motivation to learn, task complexity and innovation climate. European Journal of Innovation Management, EJIM-12-2018-0257. https://doi.org/10.1108/EJIM-12-2018-0257
Ali, M. A., Hussin, N., Haddad, H., Al-Araj, R., & Abed, I. A. (2021). Intellectual Capital and Innovation Performance: Systematic Literature Review. Risks, 9(9), 170. https://doi.org/10.3390/risks9090170
Al-kalouti, J., Kumar, V., Kumar, N., Garza-Reyes, J. A., Upadhyay, A., & Zwiegelaar, J. B. (2020). Investigating innovation capability and organizational performance in service firms. Strategic Change, 29(1), 103–113. Scopus. https://doi.org/10.1002/jsc.2314
Al-Sharif, A. M., Ali, M. H., Jaharuddin, N. S., Abdulsamad, A., & Jandab, A. (2023). The Role of Innovation Capability in the relationship between Entrepreneurial Leadership and Innovation Performance in the SMEs Service industry. Advances in Social Sciences Research Journal, 10(1), 264–278. https://doi.org/10.14738/assrj.101.13802
Alsharif, H. Z. H., Shu, T., Obrenovic, B., Godinic, D., Alhujailli, A., & Abdullaev, A. M. (2021). Impact of Entrepreneurial Leadership and Bricolage on Job Security and Sustainable Economic Performance: An Empirical Study of Croatian Companies during COVID-19 Pandemic. Sustainability, 13(21), Article 21. https://doi.org/10.3390/su132111958
Alvarez, S. A., & Barney, J. B. (2017). Resource-Based Theory and the Entrepreneurial Firm. In Strategic Entrepreneurship (pp. 87–105). John Wiley & Sons, Ltd. https://doi.org/10.1002/9781405164085.ch5
Andersson, M., Moen, O., & Brett, P. O. (2020). The organizational climate for psychological safety: Associations with SMEs’ innovation capabilities and innovation performance. Journal of Engineering and Technology Management, 55, 101554. https://doi.org/10.1016/j.jengtecman.2020.101554
Arshad, M. Z., & Arshad, D. (2018). INNOVATION CAPABILITY, ABSORPTIVE CAPACITY AND SMES PERFORMANCE IN PAKISTAN: THE MODERATING EFFECT OF BUSINESS STRATEGY. 13(2), 1–11.
Bagheri, A., & Harrison, C. (2020). Entrepreneurial leadership measurement: A multi-dimensional construct. Journal of Small Business and Enterprise Development, 27(4), 659–679. https://doi.org/10.1108/JSBED-01-2019-0027
Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99–120. Scopus. https://doi.org/10.1177/014920639101700108
Barney, J. B. (2001). Is the Resource-Based “View” a Useful Perspective for Strategic Management Research? Yes. Academy of Management Review, 26(1), 41–56. https://doi.org/10.5465/amr.2001.4011938
Breznik, L., & Hisrich, R. (2014). Dynamic capabilities vs. innovation capability: Are they related? Journal of Small Business and Enterprise Development, 21(3), 368–384. https://doi.org/10.1108/JSBED-02-2014-0018
Cai, W., Lysova, E. I., Khapova, S. N., & Bossink, B. A. G. (2019). Does Entrepreneurial Leadership Foster Creativity Among Employees and Teams? The Mediating Role of Creative Efficacy Beliefs. Journal of Business and Psychology, 34(2), 203–217. https://doi.org/10.1007/s10869-018-9536-y
Calantone, R. J., Cavusgil, S. T., & Zhao, Y. (2002). Learning orientation, firm innovation capability, and firm performance. Industrial Marketing Management, 31(6), 515–524. https://doi.org/10.1016/S0019-8501(01)00203-6
Chen, Y., Tang, G., Jin, J., Xie, Q., & Li, J. (2014). CEO s’ transformational leadership and product innovation performance: The roles of corporate entrepreneurship and technology orientation. Journal of Product Innovation Management, 31, 2–17.
Chin, W. W. (1998). The partial least squares approach to structural equation modeling. Modern Methods for Business Research, 295(2), 295–336.
Clark, C. M., & Harrison, C. (2018). Leadership: The complexities and state of the field. European Business Review, 30(5), 514–528. https://doi.org/10.1108/EBR-07-2017-0139
Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed). L. Erlbaum Associates.
Daronco, E. L., Silva, D. S., Seibel, M. K., & Cortimiglia, M. N. (2022). A new framework of firm-level innovation capability: A propensity–ability perspective. European Management Journal. https://doi.org/10.1016/j.emj.2022.02.002
Ding, W., Choi, E., & Aoyama, A. (2019). Relational study of wise (phronetic) leadership, knowledge management capability, and innovation performance. Asia Pacific Management Review, 24(4), 310–317. https://doi.org/10.1016/j.apmrv.2018.10.005
DOSM. (2022). Micro, Small & Medium Enterprises (MSMEs) Performance 2021 (p. 8). https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=159&bul_id=aFRNc2Zid295Tm1yczN5dWJNS1NwQT09&menu_id=TE5CRUZCblh4ZTZMODZIbmk2aWRRQT09
Ensley, M. D., Pearce, C. L., & Hmieleski, K. M. (2006). The moderating effect of environmental dynamism on the relationship between entrepreneur leadership behavior and new venture performance. Journal of Business Venturing, 21(2), 243–263. https://doi.org/10.1016/j.jbusvent.2005.04.006
Felix, C., Aparicio, S., & Urbano, D. (2019). Leadership as a driver of entrepreneurship: An international exploratory study. Journal of Small Business and Enterprise Development, 26(3), 397–420. https://doi.org/10.1108/JSBED-03-2018-0106
Feng, L., Zhao, Z., Wang, J., & Zhang, K. (2022). The Impact of Knowledge Management Capabilities on Innovation Performance from Dynamic Capabilities Perspective: Moderating the Role of Environmental Dynamism. Sustainability (Switzerland), 14(8). Scopus. https://doi.org/10.3390/su14084577
Fontana, A., & Musa, S. (2017). The impact of entrepreneurial leadership on innovation management and its measurement validation. International Journal of Innovation Science, 9(1), 2–19. Scopus. https://doi.org/10.1108/IJIS-05-2016-0004
Gupta, V., MacMillan, I. C., & Surie, G. (2004). Entrepreneurial leadership: Developing and measuring a cross-cultural construct. Journal of Business Venturing, 19(2), 241–260. https://doi.org/10.1016/S0883-9026(03)00040-5
Hair, J. F., Ringle, C. M., & Sarstedt, M. (2011). PLS-SEM: Indeed a Silver Bullet. Journal of Marketing Theory and Practice, 19(2), 139–152. https://doi.org/10.2753/MTP1069-6679190202
Hair, J. F., Risher, J. J., Sarstedt, M., & Ringle, C. M. (2019). When to use and how to report the results of PLS-SEM. European Business Review, 31(1), 2–24. https://doi.org/10.1108/EBR-11-2018-0203
Hair Jr., J. F., Hult, G. T. M., Ringle, C. M., Sarstedt, M., Danks, N. P., & Ray, S. (2021). Partial Least Squares Structural Equation Modeling (PLS-SEM) Using R: A Workbook. Springer Nature. https://doi.org/10.1007/978-3-030-80519-7
Harborne, P., & Johne, A. (2003). Creating a project climate for successful product innovation. European Journal of Innovation Management.
Harrison, C., Burnard, K., & Paul, S. (2018). Entrepreneurial leadership in a developing economy: A skill-based analysis. Journal of Small Business and Enterprise Development, 25(3), 521–548. https://doi.org/10.1108/JSBED-05-2017-0160
Harrison, C., Paul, S., & Burnard, K. (2016). Entrepreneurial Leadership: A Systematic Literature Review. International Review of Entrepreneurship, 14(2), 235–264.
Heale, R., & Twycross, A. (2015). Validity and reliability in quantitative studies. Evidence-Based Nursing, 18(3), 66–67. https://doi.org/10.1136/eb-2015-102129
Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science, 43(1), 115–135. https://doi.org/10.1007/s11747-014-0403-8
Hmieleski, K. M., & Ensley, M. D. (2007). A contextual examination of new venture performance: Entrepreneur leadership behavior, top management team heterogeneity, and environmental dynamism. 25.
Hogan, S. J., Soutar, G. N., McColl-Kennedy, J. R., & Sweeney, J. C. (2011). Reconceptualizing professional service firm innovation capability: Scale development. Industrial Marketing Management, 40(8), 1264–1273. https://doi.org/10.1016/j.indmarman.2011.10.002
Huang, S., Ding, D., & Chen, Z. (2014). Entrepreneurial leadership and performance in chinese new ventures: A moderated mediation model of exploratory innovation, exploitative innovation and environmental dynamism. Creativity and Innovation Management, 23(4), 453–471. Scopus. https://doi.org/10.1111/caim.12085
Hussain, N., & Li, B. (2022). Entrepreneurial Leadership and Entrepreneurial Success: The Role of Knowledge Management Processes and Knowledge Entrepreneurship. Frontiers in Psychology, 13. https://www.frontiersin.org/articles/10.3389/fpsyg.2022.829959
Hwang, W.-S., Choi, H., & Shin, J. (2020). A mediating role of innovation capability between entrepreneurial competencies and competitive advantage. Technology Analysis and Strategic Management, 32(1), 1–14. Scopus. https://doi.org/10.1080/09537325.2019.1632430
Igartua, J.-J., & Hayes, A. F. (2021). Mediation, Moderation, and Conditional Process Analysis: Concepts, Computations, and Some Common Confusions. The Spanish Journal of Psychology, 24, e49. https://doi.org/10.1017/SJP.2021.46
Imran, M., Salisu, I., Aslam, H. D., Iqbal, J., & Hameed, I. (2019). Resource and information access for SME sustainability in the era of IR 4.0: The mediating and moderating roles of innovation capability and management commitment. Processes, 7(4). Scopus. https://doi.org/10.3390/pr7040211
Ireland, R., Hitt, M., & Sirmon, D. (2003). A Model of Strategic Entrepreneurship: The Construct and its Dimensions. Journal of Management, 29(6), 963–989. https://doi.org/10.1016/S0149-2063(03)00086-2
Khalili, A. (2016). Linking transformational leadership, creativity, innovation, and innovation-supportive climate. Management Decision, 54(9), 2277–2293. https://doi.org/10.1108/MD-03-2016-0196
Kim-Soon, N., Ahmad, A. R., Chan Wei, K., & Hairul Rizad Md, S. (2017). SMES Are Embracing Innovation for Business Performance. Journal of Innovation Management in Small and Medium Enterprises, 1–17. https://doi.org/10.5171/2017.824512
Koryak, O., Mole, K. F., Lockett, A., Hayton, J. C., Ucbasaran, D., & Hodgkinson, G. P. (2015). Entrepreneurial leadership, capabilities and firm growth. International Small Business Journal, 33(1), 89–105. https://doi.org/10.1177/0266242614558315
Kuratko, D. F., & Neubert, E. (2018). Corporate Entrepreneurial Leadership: Addressing Critical Challenges in a Disruptive Age. In D. F. Kuratko & S. Hoskinson (Eds.), The Challenges of Corporate Entrepreneurship in the Disruptive Age (Vol. 28, pp. 89–109). Emerald Publishing Limited. https://doi.org/10.1108/S1048-473620180000028004
Latif, K. F., Nazeer, A., Shahzad, F., Ullah, M., Imranullah, M., & Sahibzada, U. F. (2020). Impact of entrepreneurial leadership on project success: Mediating role of knowledge management processes. Leadership & Organization Development Journal.
Lau, A. K. W., & Lo, W. (2019). Absorptive capacity, technological innovation capability and innovation performance: An empirical study in Hong Kong. Int. J. Technology Management, 80(Nos. 1/2), 107–148.
Lee, H.-C., & Liu, Y.-W. (2008). Impacts of organizational innovation capability and leadership styles on innovation performance for electronics information industry in Taiwan. 2, 1903–1907. Scopus. https://doi.org/10.1109/SOLI.2008.4682841
Leitch, C. M., & Volery, T. (2017). Entrepreneurial leadership: Insights and directions. International Small Business Journal, 35(2), 147–156. https://doi.org/10.1177/0266242616681397
Li, C., Makhdoom, H. U. R., & Asim, S. (2020). Impact of Entrepreneurial Leadership on Innovative Work Behavior: Examining Mediation and Moderation Mechanisms. Psychology Research and Behavior Management, Volume 13, 105–118. https://doi.org/10.2147/PRBM.S236876
Li, L., Li, G., Tsai, F.-S., Lee, H.-Y., & Lee, C.-H. (2019). The effects of corporate social responsibility on service innovation performance: The role of dynamic capability for sustainability. Sustainability (Switzerland), 11(10). Scopus. https://doi.org/10.3390/su11102739
Lin, Q., & Yi, L. (2022). Survival of the fittest: The multiple paths of entrepreneurial leadership driving adaptive innovation in uncertain environment. European Journal of Innovation Management, ahead-of-print(ahead-of-print). https://doi.org/10.1108/EJIM-10-2021-0488
Mehmood, M. S., Jian, Z., & Waheed, A. (2019). The influence of entrepreneurial leadership on organisational innovation: Mediating role of innovation climate. International Journal of Information Systems and Change Management, 11(1), 70–89. Scopus. https://doi.org/10.1504/IJISCM.2019.101650
Nguyen, P. V., Huynh, H. T. N., Lam, L. N. H., Le, T. B., & Nguyen, N. H. X. (2021). The impact of entrepreneurial leadership on SMEs’ performance: The mediating effects of organizational factors. Heliyon, 7(6), e07326. https://doi.org/10.1016/j.heliyon.2021.e07326
Pauceanu, A. M., Rabie, N., Moustafa, A., & Jiroveanu, D. C. (2021). Entrepreneurial Leadership and Sustainable Development—A Systematic Literature Review. Sustainability, 13(21), Article 21. https://doi.org/10.3390/su132111695
Paudel, S. (2019). Entrepreneurial leadership and business performance: Effect of organizational innovation and environmental dynamism. South Asian Journal of Business Studies, 8(3), 348–369. Scopus. https://doi.org/10.1108/SAJBS-11-2018-0136
Penrose, E. (2009). The Theory of the Growth of the Firm. Oxford University Press.
Perdomo-Ortiz, J., González-Benito, J., & Galende, J. (2006). Total quality management as a forerunner of business innovation capability. Technovation, 26(10), 1170–1185.
Prajogo, D. I., & Ahmed, P. K. (2006). Relationships between innovation stimulus, innovation capacity, and innovation performance. R&D Management, 36(5), 499–515. https://doi.org/10.1111/j.1467-9310.2006.00450.x
Prasad, B., & Junni, P. (2016). CEO transformational and transactional leadership and organizational innovation. Management Decision.
Preacher, K. J., & Hayes, A. F. (2008). Asymptotic and resampling strategies for assessing and comparing indirect effects in multiple mediator models. Behavior Research Methods, 40(3), 879–891. https://doi.org/10.3758/BRM.40.3.879
Pu, B., Ji, S., Sang, W., & Tang, Z. (2022). Entrepreneurial Leadership and Entrepreneurial Performance in Start-Ups: A Moderated Serial Mediation Model. Frontiers in Psychology, 13. https://www.frontiersin.org/articles/10.3389/fpsyg.2022.831555
Purwati, A. A., Budiyanto, B., Suhermin, S., & Hamzah, M. L. (2021). The effect of innovation capability on business performance: The role of social capital and entrepreneurial leadership on SMEs in Indonesia. Accounting, 323–330. https://doi.org/10.5267/j.ac.2020.11.021
Rajapathirana, R. P. J., & Hui, Y. (2018). Relationship between innovation capability, innovation type, and firm performance. Journal of Innovation & Knowledge, 3(1), 44–55. https://doi.org/10.1016/j.jik.2017.06.002
Rehman, K. U., Aslam, F., Mata, M. N., Martins, J. M., Abreu, A., Morão Lourenço, A., & Mariam, S. (2021). Impact of Entrepreneurial Leadership on Product Innovation Performance: Intervening Effect of Absorptive Capacity, Intra-Firm Networks, and Design Thinking. Sustainability, 13(13), 7054. https://doi.org/10.3390/su13137054
Renko, M., El Tarabishy, A., Carsrud, A. L., & Brännback, M. (2015). Understanding and measuring entrepreneurial leadership style. Journal of Small Business Management, 53(1), 54–74. Scopus. https://doi.org/10.1111/jsbm.12086
Rönkkö, M., & Cho, E. (2022). An Updated Guideline for Assessing Discriminant Validity. Organizational Research Methods, 25(1), 6–14. https://doi.org/10.1177/1094428120968614
Sarstedt, M., & Cheah, J.-H. (2019). Partial least squares structural equation modeling using SmartPLS: A software review. Journal of Marketing Analytics, 7(3), 196–202. https://doi.org/10.1057/s41270-019-00058-3
Sarstedt, M., Hair, J. F., Cheah, J.-H., Becker, J.-M., & Ringle, C. M. (2019). How to specify, estimate, and validate higher-order constructs in PLS-SEM. Australasian Marketing Journal (AMJ), 27(3), 197–211. https://doi.org/10.1016/j.ausmj.2019.05.003
Sarstedt, M., Ringle, C. M., & Hair, J. F. (2017). Partial Least Squares Structural Equation Modeling. In C. Homburg, M. Klarmann, & A. Vomberg (Eds.), Handbook of Market Research (pp. 1–40). Springer International Publishing. https://doi.org/10.1007/978-3-319-05542-8_15-1
Saunila, M. (2019). Innovation capability in SMEs: A systematic review of the literature. Journal of Innovation & Knowledge, S2444569X19300563. https://doi.org/10.1016/j.jik.2019.11.002
Saunila, M., Pekkola, S., & Ukko, J. (2014). The relationship between innovation capability and performance: The moderating effect of measurement. International Journal of Productivity and Performance Management, 63(2), 234–249. https://doi.org/10.1108/IJPPM-04-2013-0065
Saunila, M., Ukko, J., Rantala, T., Nasiri, M., & Rantanen, H. (2019). Preceding operational capabilities as antecedents for productivity and innovation performance. Journal of Business Economics. https://doi.org/10.1007/s11573-019-00963-0
Sawaean, F. A. A., & Ali, K. A. M. (2020a). The impact of entrepreneurial leadership and learning orientation on organizational performance of SMEs: The mediating role of innovation capacity. Management Science Letters, 10(2), 369–380. Scopus. https://doi.org/10.5267/j.msl.2019.8.033
Sawaean, F. A. A., & Ali, K. A. M. (2020b). The mediation effect of TQM practices on the relationship between entrepreneurial leadership and organizational performance of SMEs in Kuwait. Management Science Letters, 10(4), 789–800. Scopus. https://doi.org/10.5267/j.msl.2019.10.018
Schoemaker, P. J. H., Heaton, S., & Teece, D. (2018). Innovation, Dynamic Capabilities, and Leadership. California Management Review, 61(1), 15–42. https://doi.org/10.1177/0008125618790246
Seo, E., Kim, C.-Y., & Kim, K. (2020). A study on the mechanisms linking environmental dynamism to innovation performance. Sustainability (Switzerland), 12(23), 1–21. Scopus. https://doi.org/10.3390/su12239999
Sulistyo, H. & Siyamtinah. (2016). Innovation capability of SMEs through entrepreneurship, marketing capability, relational capital and empowerment. Asia Pacific Management Review, 21(4), 196–203. https://doi.org/10.1016/j.apmrv.2016.02.002
Susanty, A. I., Yuningsih, Y., & Anggadwita, G. (2019). Knowledge management practices and innovation performance: A study at Indonesian Government apparatus research and training center. Journal of Science and Technology Policy Management, 10(2), 301–318. https://doi.org/10.1108/JSTPM-03-2018-0030
Swiercz, P. M., & Lydon, S. R. (2002). Entrepreneurial leadership in high-tech firms: A field study. Leadership & Organization Development Journal.
Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350. https://doi.org/10.1002/smj.640
Teece, D. J. (2016). Dynamic capabilities and entrepreneurial management in large organizations: Toward a theory of the (entrepreneurial) firm. European Economic Review, 86, 202–216. https://doi.org/10.1016/j.euroecorev.2015.11.006
Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18(7), 509–533. JSTOR.
Thongyai, K., & Potipiroon, W. (2022). HOW ENTREPRENEURIAL LEADERSHIP ENHANCES THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES: THE IMPORTANCE OF INTELLECTUAL CAPITAL AND INNOVATION CAPABILITIES. ABAC Journal, 42(2), 172–194. Scopus.
Tidd, J., Bessant, J., & Pavitt, K. (2001). Innovation management. Willey, New York, 376.
Utoyo, I., Fontana, A., & Satrya, A. (2019). The role of entrepreneurial leadership and configuring core innovation capabilities to enhance innovation performance in a disruptive environment. International Journal of Innovation Management, 2050060. https://doi.org/10.1142/S1363919620500607
Vecchio, R. P. (2003). Entrepreneurship and leadership: Common trends and common threads. Human Resource Management Review, 13(2), 303–327. https://doi.org/10.1016/S1053-4822(03)00019-6
Wang, R.-T., & Lin, C.-P. (2012). Understanding innovation performance and its antecedents: A socio-cognitive model. Journal of Engineering and Technology Management, 29(2), 210–225. https://doi.org/10.1016/j.jengtecman.2012.01.001
Ye?il, S., & Do?an, I. F. (2019). Exploring the relationship between social capital, innovation capability and innovation. Innovation: Organization and Management, 21(4), 506–532. Scopus. https://doi.org/10.1080/14479338.2019.1585187
Yu, Y., Zhang, X., Huang, S., Chen, Z., & Chen, Z. (2020). Entrepreneurial Leadership and Innovation Performance in New Ventures: Examining the Roles of Strategic Flexibility and Environmental Turbulence. Entrepreneurship Research Journal, 0(0), 20180090. https://doi.org/10.1515/erj-2018-0090
Zhao, X., Lynch, J. G., Chen, Q., & article., J. D. served as editor and G. F. served as associate editor for this. (2010). Reconsidering Baron and Kenny: Myths and Truths about Mediation Analysis. Journal of Consumer Research, 37(2), 197–206. https://doi.org/10.1086/651257