Kim Soon Ng

SMES are embracing innovation for business performance

SMEs are embracing innovation in enhancing their business competitiveness. Innovation which is vital for a firm competitiveness is embedded in the organizational structures, processes, products and services within a firm. This empirical study has investigated the relationships between the products, process, marketing and organizational innovations of SMEs with its innovative, operation and financial performances. The main contribution of this study is the comprehensive analyses and testing of innovation-performance relationship based on empirical data to uncover the effects of the different types of innovations on firm performance. It is also expected to help the SMEs in the understanding of the key variables which influence their business and financial performance grounded base on resource-based theory. A total of 43 duly completed forms out of the total of 381 questionnaire survey forms that were e-mailed to owners or managers of the SMEs in the state of Johor, Malaysia were analyzed using the SPSS software package. It was found that the firm innovation has a significant and positive relationship with financial, operation and innovative performances. This is with the exception of marketing innovation which indicated no significant relationship with financial performance. Firm innovation explained a total of 39.4% of financial performance, 48.4% of operational performance and 57.5% of innovative performance. Another important point is firm innovation which is strongly and positively related to firm innovative performance. By focusing on organizational innovation, SMEs are able to enhance their firm financial performance.