Impact of Innovation Strategy on Performance: A Study of Indonesian SMEs

Abstract

This study aims to examine the impact that innovation strategy has on innovation performance in the context of Indonesian small- and medium-sized enterprises (SMEs), with a specific focus on entrepreneurs or owner-managers. Additionally, it investigates the roles that innovation culture as a mediating variable and government assistance as a moderating one play in this relationship. There is a lack of existing literature on innovation performance in Indonesian SMEs, particularly in terms of the standards for assessing SMEs’ performance. The existing body of literature has demonstrated a considerable correlation of innovation culture with innovation performance. However, the impact of this phenomenon on SMEs remains uninvestigated. One study utilized a questionnaire to gather data from SMEs in Central Java, Indonesia. A total of 150 surveys were collected and subsequently analyzed using Structural Equation Modeling (SEM). The study found that the proactive and growth risk orientation strategies had a positive impact in building an innovative culture. This means that the presence of an innovation culture was correlated with a better innovation performance. The existing literature suggests that the innovation culture serves as a moderating variable in the association between proactive strategy and innovation performance. However, the current empirical evidence does not suffice to substantiate the claim that innovation culture is mediating growth strategy with innovation performance. Empirical evidence demonstrates that government funding enhanced the influence of innovative culture on innovation performance. Finally, explanations in regard to the research implications were provided herein.