Research Journal of Business and Management – (RJBM), ISSN: 2148-6689

Year: 2015 Volume: 2 Issue: 3

THE IMPACT OF STRATEGIC INNOVATION MANAGEMENT PRACTICES ON

FIRM INNOVATION PERFORMANCE
DOI: 10.17261/Pressacademia.2015312989

Faruk Kalay¹, Gary S. Lynn²

¹Yuzuncu Yil University. [email protected]
²Stevens Institute of Technology, [email protected]

Keywords ABSTRACT
Firm innovation In a highly competitive environment, innovation is the essential key to a firm
performance, obtaining a dominant position and gaining higher profits. Therefore, the
innovation understanding of which strategic innovation management practices lead to
management success is very important. The purpose of the study is to investigate the impact of
practices, innovation innovation strategy, organizational structure, innovation culture, technological
strategy, capability and customer and supplier relationships, which appear in the literature
organizational as strategic innovation management practices in business enterprises, on firm
structure, innovation performance. In this context, data collected from 132 managers at 66
technological firms operating in the manufacturing sector in the TRB2 zone of Turkey were
capability . analyzed. The partial least squares structural equation modeling (PLS-SEM)
method was used to test hypotheses of study. The analyses revealed that
innovation strategy, organizational structure and innovation culture significantly
JEL Classification increased firm innovation performance. However, no significant impacts of
D20, O30, O31 technological capability and customer and supplier relationships on firm
innovation performance were determined.

1. INTRODUCTION
Practices regarding strategic innovation management (SIM) in firms are one of the main
topics of interest in business, politics and academic environments (Lopez-Nicolas &
Merono-Cerdan, 2011). This interest is not surprising because innovation is assessed as
the most important differentiation strategy to acquire a competitive advantage in the
market. The concept of innovation is defined as a new structure or management process,
a policy, a new plan or program, a new production process, or a new product or service
produced in an enterprise (Lopez-Nicolas & Merono-Cerdan, 2011). Freeman (1982)
defines the concept of innovation as marketing a new (or developed) product or as
technical, design, production, management and commercial practices in the use of a new
(or developed) process or equipment commercially for the first time (Bessant & Tidd,
2007).
SIM refers to the entire set of innovative practices involving the analysis of competition
mechanisms, such as creating an innovative vision, harmonizing business strategy,
expanding the strategy to all organizational levels, market tendencies, technologies and
competitor acts (Sanchez, Lago, Ferras, & Ribera, 2011). Because the concept of SIM
describes a process composed of many parts, there is not a common and clear definition
on which all scholars agree regarding the content and components of the concept. To

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overcome this confusion, Dankbaar (2003) suggested two approaches that are different
from each other but, at the same time, complementary. According to Dankbaar (2003),
SIM can be defined as either establishing preconditions in the enterprise that will
encourage human creativity or the process of information usage. SIM refers to firms
managing technology, business processes (customers, suppliers, financial and external
resources, etc.) and human relationships (culture, communication, organization, etc.) in a
way that will support and encourage innovation. In this context, the success of innovation
depends on owned resources (human, equipment, technology, information, etc.) and the
ability of the organization to manage these resources.
SIM is a process that has different components and, at the same time, requires the
management of these different components as a whole (Igartua, Garrigos, & Hervas-
Oliver, 2010). When the literature regarding SIM practices is examined, it is seen that the
leading determinants of SIM practices are innovation strategy (IS), organizational structure
(OS), innovation culture (IC), technological capability (TC) and customer and supplier
relationships (CSR) (Igartua et al., 2010; Sanchez et al., 2011; Terziovski, 2010). The
impacts of these SIM practices on firm innovation performance outputs are controversial
within the literature. Scholars setting forth the resource-based approach argue that firms
possessing the IS, flexible OS, IC, TC, effective CSR and innovative products that other
firms do not possess will achieve high performance (Han, Kim, & Srivastava, 1998). In
other words, according to these scholars, more innovative firms that are significantly
different from their counterparts provide value to the customers, as a result of which is
increased competitive advantage. Scholars asserting the contrary specify that less
innovative products are less uncertain and may possess more synergy, leading them to be
more successful (Calantone, Chan, & Cui, 2006).
The literature on firm innovation performance contains a limited number of studies
dealing with the impact of the above-mentioned SIM practices in a manner independent
from each other (e.g., Igartua et al., 2010; Sanchez et al., 2011; Terziovski, 2010).
Moreover, there is not any research addressing the impact of these practices on firm
innovation performance by modeling SIM practices as a whole. Therefore, the purpose of
this study is to explore the impact of IS, OS, IC, TC and CSR, which appear as SIM practices
in firms, on firm innovation performance.
The main contribution of this study to the industry and field of management will be the
understanding of how SIM practices in firms affect innovation performance. Moreover,
the limited research about innovation management and innovation performance
relationship, which has just started to develop in the literature and has shown a
controversial pattern of empirical research results, makes the current study important in
terms of its contribution to the existing literature and for industrial applications.

2. THEORETICAL BACKGROUND AND HYPOTHESES

2.1. Innovation Strategy (IS)
According to Porter (1996), strategy is the presence of a set of activities that will enable
the firm to differentiate itself from its competitors and to maintain its competitive
position. Typically, the results of research have shown that firms possessing an IS are more
successful when compared with those that do not possess an IS (O’Regan, Ghobadian, &

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Gallear, 2005). IS is a guide that makes firms think about why they innovate before
attempting to make an innovation. IS is composed of financial purposes and growth areas
regarding a new good or service; it is the overall criteria providing a set of filters through
which the notions of strategic roles and a new product or service should pass, thereby
defining the strategic mission of new products or services. According to Lendel and
Varmus (2011), IS is determining strategies shape the approach to aims, methods and
ways to enhance and improve the innovative potential of the firm. IS enables top
management to follow the activities of their competitors, to reach customer market
information, to use firm resources effectively and to make efficient investments in
research and development (Oke, Walumbwa, & Myers, 2012). These activities have been
found to positively impact firm innovation performance (Verhees and Meulenberg, 2004).
Firms permanently conduct their activities under internal and external contingencies.
From the contingency perspective, to manage uncertainties, organizations may try to
improve their performance by applying effective strategies (Donaldson, 2001). For
instance, under the environmental conditions of an increasingly competitive environment
and constantly changing customer needs, managers will strategize and allocate resources
appropriately to improve firm innovation performance. In other words, the application of
an IS in a firm can ensure the implementation of successful innovations by decreasing
critical internal and external contingencies. According to Tang (1998), there are three
important questions that must be answered regarding IS: (1) Which (what type of)
innovations will be performed by the enterprise? (2) How will the enterprise perform
these innovations? (3) By which methods will the enterprise present its innovations to the
market? The answers of these questions require regulations that are consistent with the
strategy regarding all resources of the enterprise, business relationships and production
processes. The general opinion in the literature is that IS has a positive effect on the
quality of innovation and firm innovation performance (Wu & Lin, 2011).
Hypothesis 1: Innovation strategy is positively related to firm innovation performance.

2.2. Organizational Structure (OS)

A critical element for companies is the formation of organizational structures that make
cross-functional knowledge and resource sharing possible, which ensures strategic
decision-making, the resolution of disagreements, and the active and effective
coordination of the process of innovation (Olson, Walker, & Ruekert, 1995; Song &
Montoya-Weiss, 1998). Miller (1987) defines OS as permanently distributing work roles
and administrative mechanisms to enable an organization to perform, coordinate and
control its business activities and resource flows. OS is classified as organic and mechanic.
It is assumed that tasks containing a high degree of uncertainty require organic structures,
while tasks containing low uncertainty require mechanic approaches. When this theory is
taken as a basis, complicated innovation projects cannot be carried out successfully in
formal, official and bureaucratic structures (Miller, Droge, & Toulouse, 1988); however,
flexible organic structures may facilitate innovation by increasing the power to
conceptualize new technology (Matsuno, Mentzer, & Ozsomer, 2002; Olson et al., 1995).
A flexible and organic organizational structure can facilitate both quick response to
customer needs and attempts to share efforts toward workgroup development (Saleh &
Wang, 1993). Effective distribution of acquired market information among all OS functions

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and hierarchical stages requires organic (that is, flexible, informal and decentralized)
organizational structures (Gupta & Wilemon, 1986; Matsuno et al., 2002). For example,
Kim, Song, and Lee (1993) argued that successful firms have less formalized and
centralized but more professionalized and managerially intensive OS that allows them to
be responsive to external contingencies.
However, according to some scholars, an OS based on formal, functional specialization
and formal control may increase new product development performance by enabling
coordination among different functional units, increasing the level of cost effectiveness,
decreasing uncertainty and minimizing mistakes (Schultz, Salomo, de Brentani, &
Kleinschmidt, 2013). In other words, formal and centralized structures may facilitate
innovation instead of suppressing it. For example, because exploitative innovation
generally appears in the existing pursuit of strategic goals and fosters enhancement and
developments in existing innovations, formalization may have a positive impact on
exploitative innovation (He & Wong, 2004). However, because exploratory innovation
requires withdrawing from current knowledge databases and creating new strategies,
formalization may obstruct exploratory innovation (March, 1991). The dominant opinion
in relation to the impact of OS on firm innovation performance defends flexible OS (Gupta
& Wilemon, 1986; Matsuno et al., 2002; Olson et al., 1995); however, some scholars note
that time and cost effectiveness are identified as mechanical structures (He & Wong,
2004; Schultz et al., 2013).
Hypothesis 2: Organizational structure is positively related to firm innovation performance.

2.3. Innovation Culture (IC)

IC is defined in different ways in the literature. According to Koberg and Chusmir (1987)
and Deshpande, Farley, and Webster (1993), the key concepts associated with being
innovative, from a cultural perspective, are creativeness, openness, accepting new ideas
insightfully (not being closed to new ideas), taking risks and entrepreneurial mentality.
While Capon, Farley, Lehmann, and Hulbert (1992) point to having an open and informal
communication climate to define IC, Kuczmarski (1998) defines it as the formation of a
holistic belief and mentality with regard to supporting innovations among employees. In
other words, firms possessing an IC are places with an atmosphere in which
entrepreneurship and risk taking are supported and rewarded, and employees and
product development teams are not punished, even when new products become
unsuccessful in market (De Brentani & Kleinschmidt, 2004).
Research in the organizational literature states that because a strong IC plays a key role in
determining working environment, strategy, organizational behavior and processes, it
increases firm innovation performance (de Brentani & Kleinschmidt, 2004). For instance,
according to Hynes (2009), because culture defines employees, customers, competitors
and suppliers, and their interaction with enterprise, there is a comprehensive impact of
culture on the firm. Some scholars discussing IC in a general sense, especially in large and
institutionalized firms, state that organizational culture is the most general obstacle in
terms of innovation and firm success (O’Regan et al., 2005). On the other hand, some
scholars specify that an entrepreneurial and innovative organizational culture has an
indirect impact on firm success (Martin-de Castro, Delgado-Verde, Navas-Lopez, & Cruz-

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Gonzale, 2013). The general opinion on this issue, according to both resource-based
approach (Terziovski, 2010) and the information-based approach (Donate & Guadamillas,
2010), is that culture has a positive impact on information management practices
regarding innovation and firm performance.
Hypothesis 3: Innovation culture is positively related to firm innovation performance.

2.4. Technological Capability (TC)

TC is defined in different forms in the literature. According to Cerulli (2014), TC is
acquiring, harmonizing and improving information and capabilities and providing firms
with sustainable innovative capacity and market success. Sobanke, Ilori, and Adegbite
(2012) define TC as the sum of a firm’s specific efforts and strategies regarding choosing,
establishing, comprehending, orientating, enhancing and improving technology. Similarly,
Terece, Pisano, and Shuen (1997) define TC as the ability of an enterprise to conduct
technical activities and business, including efficiently developing a new product or process
and other activities. Both technology and the ability to compete with technology-based
capabilities underlie a firm’s ability to be successful and maintain its continuity. Firms
having TC will create effective processes in the firm by using these capabilities and
effective processes, naturally, which will increase both the firm’s innovation (product and
process) performance and its general competitiveness strength (Ortega, 2010).
Firms are separated according to their technology capabilities. Vega-Jurado, Gutierrez-
Gracia, Fernandez-de-Lucio, and Manjarres-Henriquez (2008), who consider innovation a
potential source of competitive advantage, emphasize that TC—typically measured with
research and development—is a determinant of innovation and performance.
Technological developments may change market dynamics, weaken the positional
superiority of established firms and enable new firms to successfully enter the market
(Han et al., 1998). Firms have to stay agile to collect customer and competition
information and to make use of the opportunities made available by new technologies so
that they can survive and compete with other firms in these types of markets (Li &
Calantone, 1998). Although there are contradictory findings in the literature regarding the
impact of TC on firms’ learning strategies and types of innovation (Zhou & Wu, 2010), the
general opinion on this topic is that TC has an indirect or direct impact on new product
development (Moorman & Slotegraaf, 1999).
Hypothesis 4: Technological capability is positively related to firm innovation performance.

2.5. Customer and Supplier Relationships (CSR)

Innovation encourages firms to have a market-based perspective. Thus, a company’s
strategic tendency towards both customers and suppliers plays an important role in the
process of innovation (Atuahene-Gima & Ko, 2001). Evaluating customers and suppliers as
partners will give the firm an opportunity to acquire maximum efficiency from scarce
resources (Appiah-Adu & Singh, 1998) and gain new capabilities or develop present
capabilities (Terziovski, 2010). This will also provide the firm with the opportunity to share
risks with suppliers and customers (O’Regan et al., 2005). While Chung and Kim (2003)
state that firms should cooperate with suppliers to increase their input quality and
decrease production costs during process innovation, Von Hippel (2005) emphasizes the

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importance of cooperation with customers as the source of new ideas regarding product
innovation.
Firms’ acquiring information from different areas and the synergy achieved through
comprehensive cooperation with customers and suppliers will have a positive impact on
firm innovation performance. For example, while suppliers may be a technological
information source of the firm regarding production processes, customers may be the
main source of information regarding the market (Belderbos, Carree, & Lokshin, 2004).
According to the resource-based perspective, a firm can combine its resources with the
resources of suppliers and maintain competitive superiority as a result of cooperation with
suppliers. However, the information-based perspective emphasizes the crucial importance
of relationships with suppliers and customers to fill in the information deficiencies of firms
(Spender, 2007). Similarly, the cognitive perspective notes the impact of cooperation with
suppliers and customers on firm innovation performance to meet the needs of enterprises
for cognitive resources and to gain the capability of self-actualization (Nooteboom, 1999).
Hypothesis 5: Customer and supplier relationships are positively related to firm innovation
performance.

3. METHOD
3.1. Sample and Procedure
To empirically investigate the effect of SIM practices on firm innovation performance and
to identify the main SIM practices, a questionnaire based on previous studies was
developed and a survey was conducted to collect data.
The initial sample of the study consisted of manufacturing firms that have at least 10
employees in Turkey’s TRB2 zone. According to the principles of the Nomenclature of
Territorial Units for Statistics of the European Union Office of Statistics, taking into
account neighboring provinces—which show similarity from an economic, social and
geographical standpoint, regional development plans and population size—Turkey is
divided into 26 zones under the Level 2 rubric maintained by the Turkish Statistical
Institute (TUIK) and the Republic of Turkey Ministry of Development (DPT). The TRB2 zone,
which comprises four provinces, is one of 26 such zones.
First, 600 manufacturing enterprises recorded in the databases of the Small and Medium
Enterprises Development Organization (KOSGEB), the European Turkish Business Centers
Network (ABIGEM) and the Chamber of Commerce and Industry (VATSO) were examined
to select a sample conforming with the purpose of study. During the examination of the
database, criteria such as the establishment dates of companies, sectors in which they
operate, their legal status (corporation, limited liability company, etc.), their sizes, the
goods and services they produce, their market shares, whether they export, their
management styles, etc., were considered. To obtain accurate information on the
companies according to the criteria, the web sites of the companies that were available in
the databases were examined, news searches about the companies were conducted
through Google, the opinions of experts at VATSO, ABIGEM and KOSGEB with information
on the companies were obtained and direct phone calls were made to some of the
companies. After obtaining detailed preliminary information on the companies, 80

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companies operating in the manufacturing sector, which were the most suitable
companies for the purpose of study, were selected for the sample. The companies
selected for the sample consisted of enterprises producing new goods and services and
marketing them to foreign countries, including countries in the Middle East, the European
Union, Central Asia, etc., as well as the domestic market. Moreover, these companies
consisted of those that were organized and managed in accordance with Western
management styles and were carrying out their activities in conformity with ISO
(International Organization for Standardization) and other European quality standards.
After the selection of 80 companies conforming with the purpose of study, the executives
of the companies were contacted by phone, the purpose, scope and method of the study
were described to them, and they were asked to participate in the research. 75 of 80
companies agreed to participate in the research and to complete the questionnaires. With
the approval and guidance of the companies’ general managers, two individuals from each
company, who were in manager positions and who had the most extensive information on
the activities of their company, were asked to complete the questionnaires. The purpose
of obtaining data from two individuals from each company was to avoid single-source
bias. Assurance was provided to individuals from whom data were obtained indicating
that their responses on the questionnaires would remain confidential and would not be
used for any other purpose. This assurance increased the willingness of the participants to
cooperate with the researcher and enabled them to provide more sincere and realistic
responses by increasing their motivation for participating in the research.
A total of 70 of 75 companies agreeing to participate in the research completed the
questionnaires, and a total of 136 questionnaires were obtained. Four companies
completed and sent back only one questionnaire, and 66 companies completed and sent
back two questionnaires as requested. As the companies were asked to complete at least
two questionnaires, the four companies completing a single questionnaire were excluded
from the analysis. Thus, as the result of data collection process, 132 questionnaires
received from 66 companies (two questionnaires from each company) were included in
the assessment and were analyzed.
In the sample, 50% of the respondents to the questionnaire were top managers, 37.9%
were mid-level managers, 6.8% were junior administrative officers, and 5.3% were
individuals working in marketing and public relations departments. There were 10-20
employees in 40 companies, 21-30 employees in 15 companies, 31-40 employees in five
companies, 41-50 employees in three companies, and more than 50 employees in three
companies. These findings regarding the number of employees indicate that the
companies were actually small- and medium-size enterprises. Moreover, the average of
age of enterprises was determined to be 14.79, with a standard deviation of 14.12.

3.1.1. Common Method Variance

During the collection of data, the subject of common method variance (CMV) was
considered. First, the data obtained from two managers from each company was assessed
to overcome the CMV problem in the data collection phase. Second, Harman’s one-factor
test, which is the most well known and frequently used method to test CMV in single-

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method research, was used, and it is tested whether CVM was a problem or not
(Podsakoff & Organ 1986). Generally, all of the factors in a study are subjected to
exploratory factor analysis (EFA) with the option of unrotated solution in this single-factor
test. If, as a result, (1) a single factor is obtained in the factor analysis, or (2) more than
one factor is obtained, and if the first factor explains a large part of the variance in the
variables, then it is assumed that there is a CMV problem (Podsakoff & Organ 1986). In the
present study, when the items of SIM practices and the items of innovation performance
were both subjected to EFA, it was observed that neither of the conditions revealing CVM
was revealed. As the result of the unrotated principal component factor analysis
performed on all of the measurement items, six factors with an eigenvalue larger than one
were obtained, and it was determined that these six factors explained 72% of the total
variance. It was determined that the first factor was explained only 38% of the variance. In
other words, a single factor was not obtained as the result of the factor analysis, and
generally a single factor did not explain a large part of the variance. Thus, these findings
provide strong evidence of a lack of common method bias in the present study.

3.2. Measures

To test the hypotheses of the study, multi-item scales used in the previous studies were
compiled, and the dependent and independent variables of the study were measured. IS,
OS and CSR constructs were measured using the scales used in the study of Terziovski
(2010). The IS construct was measured with nine items, the OS construct with seven items,
and the CSR construct with five items in total. The IC construct was measured with a scale
consisting of seven items compiled and prepared from Martin-de Castro et al. (2013) and
Terziovski (2010). The TC construct was measured with a scale consisting of eight items
compiled and prepared from Su, Peng, Shen, and Xiao (2013) and Terziovski (2010).

The firm innovation performance constructs—the dependent variable of the research—

was measured with a scale consisting of five items, which was used in the study of Oke et
al. (2012). Some scholars have indicated that the perceived innovation performance
actually has a significant and positive correlation with the objective innovation
performance (Powell, 1992). In conformity with other studies (e.g., Oke et al., 2012), the
present study focused on perceived firm innovation performance. The participants were
asked to compare the innovation performance of their companies with the performance
of competitive companies in the market in the context of the innovation performance
indicators. IS, OS, IC, TC, CSR, and firm innovation performance constructs were measured
using selfreport items on a Likert-type scale ranging from 0 to 10 (0 = strongly disagree, 10
= strongly agree).

In the present study, the parallel translation method was used to make sure that the scale
items were correctly translated from English to Turkish. First, the scale items were
translated from English to Turkish by one individual, and then the items were translated
from Turkish back to English by another individual. Then, the two translators mutually
studied the translations and came to an agreement on all of the differences. The
compliance of the content and meaning of the Turkish version of items of questionnaire
was subjected to a preliminary test on 10 graduate students already working in the

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manufacturing sector. The graduate students specified that there were no problems
regarding content and integrity of the meanings and they did not encounter any difficulty
in comprehending the items. Moreover, to obtain their comments regarding the validity of
items of scale, five academics working in the field of business management were
contacted, and the items of questionnaire were revised based on their recommendations.
After obtaining the final form of the questionnaire through these operations, the
questionnaires were distributed to the firms by the researcher using the “personally
administered questionnaire” method, and they were returned. The items of the
questionnaire are provided in the Appendix.

3.2.1. Control Variables

In addition to the dependent and independent variables, the size of the company (total
number of employees at the workplace) and the age of the company (years of operation) -
which are extensively used as control variables in research on innovation performance -
were used as control variables. Some scholars specify that larger and more
institutionalized companies will be more skillful and will have more strategic freedom
regarding innovation compared to smaller and newer companies (Duysters & Hagedoorn,
2002). At the same time, firm size and age may also cause rigidity and inertia that can
negatively affect innovation activities and overall firm performance (Kelly & Amburgey,
1991).

3.3. Analyses and Results

The partial least square (PLS) method was performed to develop a path model to estimate
the measurement and structural parameters in the structural equation model (SEM) (Chin,
1998). In the organizational literature, Sosik, Kahai, and Piovoso (2009) have suggested
that the PLS data analytical technique is a powerful means for organizational research
because PLS (1) can test multivariate structural models with a limited sample size, (2) can
be applied to develop theory in early stages of research, and (3) can use the bootstrapping
technique to identify the 95% confidence intervals of the path coefficients, providing more
accurate findings. Due to the relatively small sample size at the organizational member
level (N=132), the present study followed Sosik et al.’s (2009) suggestion to use the PLS
approach. The path model was developed and tested applying the statistical software
application SmartPLS 3.2.0 for measurement validity and to test the structural equation
model.

3.4. Measurement Validation

First, before examining the hypothesized structural model, the psychometric specifications
of the measurement instruments need to be evaluated. For this, the procedure outlined
by Hair, Ringle, and Sarstedt (2011) was performed to examine the measurement model
for indicator reliability, internal consistency reliability, convergent validity, and
discriminant validity, using reflective indicators for all constructs. Thus, indicator reliability
was evaluated by the each of the indicator loadings. With respect to the SIM practices

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constructs and the innovation performance construct, the standardized item loadings on
their respective constructs ranged from 0.71 to 0.92, which were much larger than the
minimum acceptable level of 0.70 (Chin, 1998) and were highly significant (p<.0001). As
suggested by Henseler, Ringle, and Sinkovics (2009), indicators of each construct were
highly correlated, reflecting the same underlying construct. The scores of a construct were
correlated with all other constructs’ indicators in its own block (Chin, 1998). Internal
consistency reliability was examined by means of composite scale reliability (CR). For all
constructs, the PLS-based CR ranged from 0.88 to 0.93, which exceeded the suggested
cutoff value of 0.70 or above (Chin, 1998; Fornell & Larcker, 1981). Convergent validity
was tested by inspecting the average variance extracted (AVE). For all constructs, the AVE
ranged from 0.59 to 0.74, which was above the recommended 0.50 cutoff value and
consistent with the recommendation of Fornell and Larcker (1981). The standardized
indicator loadings, CR and AVE values are shown in the Appendix. Finally, the discriminant
validity of the measures was evaluated by examining both the Fornell and Larcker criteria
and the theta matrix (ϴ) (Fornell & Larcker, 1981; Chin, 1998). For satisfactory
discriminant validity, the square root of the AVE should be above the values of both
horizontal and vertical correlations between constructs, and the loading value of an
indicator on its own construct should be higher than all of its cross loadings (Chin 1998;
Hair et al., 2011). The means, standard deviations, square root of AVE for each construct,
and correlation coefficients for all constructs are displayed in Table 1. As recommended by
Fornell and Larcker (1981), the latent factor correlations between pairs of constructs were
smaller than the square root of AVE for each construct. As shown in Table 1, the highest
correlation was between IS and innovation performance (r=0.63), which is less than the
square root of the AVE for IS (0.79) and innovation performance (0.85). Additionally, the
theta matrix (ϴ) was checked and showed that the loading value of each indicator on its
own construct was higher than all of its cross loads (Chin, 1998). According to these
findings, the result was that all constructs show satisfactory discriminant validity. These
findings suggest that the IS, OS, IC, TC, CSR and innovation performance constructs are
reliable, valid and unidimensional.

Table 1: Correlation Matrix and Descriptive Statistics

Variable Mean S. D. 1 2 3 4 5 6
(1) Innovation Performance 8.38 1.52 0.85
**
(2) Innovation Strategy 8.33 1.46 0.63 0.79
** **
(3) Organizational Structure 7.52 1.72 0.56 0.49 0.77
** ** **
(4) Innovation Culture 7.69 1.93 0.52 0.42 0.53 0.80
** ** ** **
(5) Technology Capability 7.85 1.96 0.48 0.48 0.54 0.51 0.84
** ** ** ** **
(6) Custumor&Supplier Relations. 8.95 1.44 0.46 0.47 0.30 0.39 0.30 0.86
**
Note. p<.01(two-tailed); N=132; the square root of AVE was shown as bold numbers on the
diagonals.

3.4.1. Multicollinearity

There is a need to test for multicollinearity because it could cause parameter estimation
problems (Hair et al., 2011). To detect multicollinearity, variance inflation factors (VIFs)
and tolerances were assessed for each construct component. The VIFs of indicators

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ranged from 1.36 to 1.71, and the average was 1.61. Tolerances ranged from 0.58 to 0.73.
All VIFs and tolerances were within acceptable threshold levels (VIF < 3.3, tolerance >
0.20) (Hair et al., 2011). These findings indicated that multicollinearity did not seem to be
a problem.

3.5. Hypothesis Testing

PLS path modeling and the bootstrapping resampling method were performed to assess
the stability and statistical significance of the parameter estimates in the structural model
(Chin, 1998). That process entailed generating 500 subsamples of cases randomly
selected, with replacement, from the original data. Then, path coefficients were produced
for each randomly selected subsample. T-statistics were calculated for all coefficients,
based on their stability across the subsamples, indicating which links were statistically
significant. Table 2 shows the hypotheses, hypothesized links, the standardized path
coefficients (β), t-values, R2 value, Q2 value and the results of all hypotheses. As shown in
Table 2, values of IS (β=0.35, p<.01), OS (β=0.21, p<.05) and IC (β=0.19, p<.05) are
positively associated with firm innovation performance, supporting Hypothesis 1,
Hypothesis 2 and Hypothesis 3. However, no statistically significant association was found
between TC, CSR and firm innovation performance, which indicated no support for
Hypothesis 4 and Hypothesis 5. In addition, firm size and firm age are not significant
predictors of firm innovation performance.

Table 2: The Results

Hypothesis Hypothesized links β t-values Results
**
Hypothesis 1 Innovation Strategy FIP 0.35 4,29 Supported
*
Hypothesis 2 Organizational Structure FIP 0.21 2.51 Supported
*
Hypothesis 3 Innovation Culture FIP 0.19 2.09 Supported
Hypothesis 4 Technology Capability FIP 0.07 0.77 Not
Hypothesis 5 Customer and Supplier Relatioships FIP 0.14 1.63 Not
Control Firm size FIP 0.05 1.15
variables Firm age FIP -0.06 0.89
2
R = 0.55
2
Q = 0.38
** *
Note. p<.01; p<.05; FIP: Firm innovation performance.

The findings also indicate that the proposed model explains 55% of the variance in
innovation performance. In other words, IS, OS, IC, TC, and CSR variables together explain
55% of the variance (R2=0.55) in firm innovation performance. The R2 index of the
variables demonstrated a satisfactory level of predictability (Chin, 1998). In addition,
Stone-Geisser’s Q2 was measured using blindfolding procedures (Henseler et al., 2009).
The Q2 value ranged above the threshold value of zero (Q2=0.38), indicating that the
variables have predictive relevance for firm innovation performance, thus confirming the
overall model’s predictive relevance.

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4. DISCUSSION

The results of the analysis showed that IS had a positive impact on firm innovation
performance. In other words, it was determined that enterprises possessing an IS were
more innovative and successful. This result is consistent with the literature suggesting that
IS has an impact on firm innovation performance indicators (e.g., Bessant & Tidd, 2007;
Oke et al., 2012; Verhees & Meulenberg, 2004). In many studies, a positive correlation has
been shown between the activities to be performed by top management within the scope
of IS and firm innovation performance (e.g., Verhees & Meulenberg, 2004).

The results of this study showed that IC has a positive effect on firm innovation
performance. In other words, it was determined that firms possessing an organizational
environment that promote risk taking, rewards success, and provides freedom to
experiment were more successful. This result is consistent with the research results
determining a positive impact of IC on firm innovation performance (e.g., Damanpour,
1991; Oke et al., 2012; O’Regan et al., 2005).

At the same time, the results of this study showed that OS also has a positive effect on
firm innovation performance. In other words, it was determined that firms possessing a
flexible and organic OS were more successful. Although previous findings on this issue are
controversial, there are many research results supporting this finding (e.g., Gupta &
Wilemon, 1986; Song & Montoya-Weiss, 1998). The argument in the literature about the
impact of OS on innovation performance is mostly related to innovation type. According to
some scholars, a firm structure based on formal and functional specialty may be an
advantage for performing small-scale exploitative innovations (He & Wong, 2004; Schultz
et al., 2013). In addition, some scholars state that because it will create an important
obstacle to change, formal OS will hinder exploratory innovation, which requires
presenting new strategies (March, 1991; Matsuno et al., 2002).

This study did not determine a significant relationship between TC and firm innovation
performance. As Terziovski (2010) noted, a probable reason for this finding is that SMEs
consider technology capabilities as a supporting tool rather than a determinant of their
performance. Another explanation of this topic may be business process reengineering
(BPR). BPR requires radically changing business processes and depends on the successful
application of information technologies (Bessant & Tidd, 2007). BPR programs fail when
they are not harmonized with the strategic objectives of the firm. According to Holland
and Kumar (1995), 80% of these types of programs fail.

At the same time, according to the results of this study, no significant relationship was
confirmed between CSR and firm innovation performance. This result is in accord with the
results in the literature. Although previous studies emphasized the importance of supplier
relationships in terms of input quality and decreasing costs (Chung & Kim, 2003) as well as
the importance of customer relationships as information source (Von Hippel, 2005), the
findings on this topic are controversial. While some studies support a customer and
supplier focus, others suggests that taking customers and suppliers as a base will cause

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exploitative innovation to occur in the present products rather than exploratory

innovation (Atuahene-Gima, 2005).

5. IMPLICATIONS

The results of this study show that some SIM practices applied by firms to gain
competitive superiority in the sector in which they are active and to increase the number
of new goods and services they produce and present to the market have a positive impact
on firm innovation performance while others do not. In this context, the study has
reached important conclusions from the viewpoint of understanding which SIM practices
affect overall firm innovation performance. First, the finding regarding the positive impact
of IS, OS, and IC on firm innovation performance presents significant implications for
managers and sectoral implementers. Firms’ possessing an IS in the phase of innovation
management will probably improve their innovation performance (Terziovski, 2010).
When the firms realize that IC is a basic part of the innovation process, it is likely that their
performance and innovation management capabilities will improve (Terziovski, 2010). In
other words, adopting an innovative culture including recognition systems and rewards
may encourage generation of new ideas, rule breaking, and innovative behaviors by
organizational members (Khazanchi, Lewis, & Boyer, 2007). Similarly, Khan and
Manopichetwattana (1989) noted that formal organizational structure refers to resistance
to change throughout implementation. In this context, to improve innovation
performance, managers must adopt a flexible and organic organizational structure.

Although no a positive impact of TC and CSR on innovation performance could be

confirmed in the findings of this study, many studies have underlined that when the
mentioned practices were performed in conformity with strategic objectives of firms, they
might have a positive impact on the innovation performance indicators. In this sense,
firms should handle innovation not only from a technological point of view or in the
context of customer needs but also in conformity with the market focus and strategic
objectives of the enterprises (Bessant & Tidd, 2007).

6. LIMITATIONS AND DIRECTIONS FOR FUTURE RESEARCH

There are some limitations of this study, and these limitations provide scholars with new
suggestions. This study was carried out on the manufacturing sector operating in the TRB2
zone of Turkey. The sample used in this study was taken from SMEs. Consequently, the
findings of this study are limited to this sample. Therefore, different results may be
acquired when the future studies are performed on technology companies, other sectors
or larger enterprises. In this study, customer and supplier relationships were considered
together as a single construct. This situation may be problematic for generalizing the
study’s conclusions for relationships with both customers and suppliers. Future research
may separate the relationships with customers and suppliers and discuss these topics as
different constructs. In this study, although data were taken from two people in each firm,
to eliminate single-source bias, future studies should take data from more firms and from
more employees in each firm.

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7. CONCLUDING REMARKS
The purpose of this study was to explore the impact of IS, OS, IC, TC and CSR, which are
strategic innovation management practices used by firms to be innovative, on firm
innovation performance. The study was conducted with data collected from 132 managers
in total by obtaining data from 66 manufacturing firms in the TRB2 zone of Turkey. The
results of the analyses showed that IS, OS and IC have a positive and significant impact on
firm innovation performance. However, it could not be determined whether TC and CSR
had any significant impacts on firm innovation performance.

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APPENDIX: Scales
Standardized loadings of items are given in parentheses.
AVE: Average variance extracted; CR: composite reliability.
*
Dropped item because the standardized item loading was smaller than the minimum
acceptable level of 0.70 (Chin, 1998).
Innovation Strategy (Terziovski, 2010)
IS1) Vision or mission of the firm includes a reference to innovation (0.83)
IS2) Our innovation strategy helps the firm to achieve its strategic goals (0.87)
IS3) Increasing the production rate in the firm is an important indicator of process
innovation (0.78)
IS4) Improving managerial routines in the firm is seen as part of innovation strategy (0.80)
IS5) Internal cooperation in the firm is seen as an essential part of innovation strategy
implementation in the firm (0.78)
IS6) Customer satisfaction in the firm is seen as an essential part of the firm innovation
strategy (0.79)
IS7) Increasing the quality of product or service continuously is one of our most important
basic goals of innovation strategy (0.77)
IS8) Formulating innovation strategy improves employee skills (0.71)
IS9) Improving the commitment and morale of employees in the firm is an essential part
*
of our innovation strategy
CR = 0.93
AVE = 0.63
Organizational Structure (Terziovski, 2010)
OS1) Managers allocate all resources between departments to be used by cross-functional
workgroups (0.74)
OS2) Employees follow changes in emerging technologies (0.78)
*
OS3) Employees use their failures as opportunities to learn
OS4) Managers always provide communication systems to simplify formal communication
in the firm (0.78)
OS5) Operational plans or timelines and procedures are used to observe development
(0.78)
*
OS6) The general manager encourages all employees to resist the status quo
OS7) The organizational structure of our firm promotes searching for and incorporating
different viewpoints (0.77)
CR = 0.88
AVE = 0.59
Innovation Culture (Terziovski, 2010; Martin-de Castro et al., 2013)
IC1) Behaviors related to creativity and innovation are rewarded in our organizational
*
culture
*
IC2) Informal meetings and interactions are encouraged in our organizational culture
IC3) Employees are encouraged to observe their own performance in our organizational
culture (0.75)

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IC4) Our employees ordinarily take risks by experimenting with new methods of doing
*
things
IC5) Employees are encouraged to share knowledge with each other in our organizational
culture (0.83)
IC6) Our culture takes into account the long-term performance of teamwork (0.81)
IC7) Our organizational culture always encourages innovation, creativity and new ideas
(0.80)
CR = 0.88
AVE = 0.64
Technological capability (Terziovski, 2010; Su et al., 2013)
*
TC1) Our organization has the same or similar technologies as our competitors’
TC2) Managers divide resources to share technology (0.77)
*
TC3) Our company considers the use of technology as a determinant of business growth
TC4) Our company’s technological objectives guide the appraisal of new ideas (0.87)
TC5) Our employees search for new information, ideas and technologies (0.88)
TC6) Employees work consistently with the specific technological goals or objectives (0.86)
TC7) Company capability in forecasting technological change in the industry is high (0.87)
TC8) Company capability in technological development is high (0.79)
CR = 0.93
AVE = 0.71
Customer and Supplier Relationships (Terziovski, 2010)
CSR1) The reputation of our firm is very important to its competitive advantage (0.77)
*
CSR2) Our firm has the same or similar technologies as our customers
CSR3) Customer satisfaction is essential for the firm’s competitive advantage (0.92)
CSR4) Supplying goods or services is essential for the competitive advantage of firm (0.89)
*
CSR5) Our firm has the same or similar technologies as our suppliers
CR = 0.89
AVE = 0.74
Firm Innovation Performance (Oke et al., 2012)
FIP1) Our firm is better than our competitors at developing new products to meet
customers’ needs (0.85)
FIP2) Our firm is perceived by our customers more innovative than our competitors. (0.86)
FIP3) Our firm is more effective than our competitors at capturing ideas and convert them
into new products (0.86)
FIP4) Our firm is better in terms of the number of innovations (new products) than our
competitors over the last 2 years (0.84)
FIP5) The duration it takes between the conception of an innovation and its introduction
into the market place by our firm is better than the industry average (0.85)
CR = 0.92
AVE = 0.73

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