The Effect of Technological and Non-technological Innovation Capability towards Operational Performance and Its Implication on Business Performance

Abstract

One factor widely proposed as a fundamental aspect of operational and business performance improvement is innovation capability. Yet, it is also reported that both positive and negative effects of innovation capability on firm performance might arise. In addition, there is still a lack of study which provides a comprehensive explanation regarding innovation capability in SMEs. This study primarily aims to investigate the effect of technological and non-technological innovation capability towards operational performance and its implication on business performance. This study follows a survey methodology involving 118 Indonesian manufacturing SMEs. The findings of this study confirm that two factors being investigated, namely technological innovation capability and non-technological innovation capability, directly and indirectly provide a positive effect on operational and business performance. The findings imply that manufacturing SMEs owners or managers should be aware that high operational performance is a prerequisite condition for the success to compete in the marketplace. For this reason, the SMEs owners or managers should be aware that SMEs need to possess some degree of innovation capability. The premise is that both operational and business performance is influenced by the extent to which the organizational capability to innovate their product, process, marketing, and organization.

Keywords: innovation capability, operational performance, business performance, Indonesian manufacturing SMEs