The Role of Innovation in Business Orientation and Performance of SMEs

Abstract

Purpose: This study aims to examine the effect of entrepreneurial orientation, customers and competitors on business performance mediated by innovation.

Methodology/approach: The population in this study was 3,945 small and medium-sized furniture businesses in Jepara district. The type of research data is primary with the data collection method using a questionnaire. The data were analyzed using the partial least square structural equation modeling technique which was processed with the smart-pls 3.0 tool.

Results/findings: The results showed that entrepreneurial orientation has a significant positive effect on business performance, as well as innovation. However, customer orientation and competitor orientation did not show a significant effect on business performance. In addition, innovation is proven to mediate the relationship between entrepreneurial orientation, customers, competitors, and business performance.

Limitations: This study is limited to SMEs in the furniture sector in Jepara Regency, so the results may not be generalizable to other sectors or regions.

Contribution: This research contributes to the understanding of the importance of innovation in improving business performance, particularly in the furniture SME sector. In addition, this study highlights the role of entrepreneurial orientation, customers, and competitors as key factors in driving innovation and business performance.

Novelty: This study offers novelty by exploring the role of innovation as a mediator in the relationship between entrepreneurial orientation, customers, competitors, and business performance, which has not been widely studied in the context of furniture SMEs in Indonesia.