The Impact of Managerial and Adaptive Capabilities on Organizational Innovation in SMEs


Student thesis: Doctoral Thesis

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Awarding Institution
Award date9 Jul 2018


Small and Medium-sized (SMEs) are today embracing severe competition due to an ever-changing environment where they are constantly challenged to achieve and sustain the competitive advantage. SMEs are constantly forced to rethink, revamp and reconfigure their current pool of resources and capabilities to maintain the earned competitive advantage under increased competitive pressure. The resource-based view (RBV) and dynamic capability (DC) perspectives explained that the firms with unique resources and capabilities can achieve and sustain novelty and competitive advantage faster than their rival.

Innovation studies, especially in the context of SMEs, have mostly focused on explaining and exploring that, how firms can create an innovation enabling environment, also highlight the key determinants of organizational innovation. However, how organizational innovation processes occur, the development of key organizational capabilities, their impact on organizational innovation, and the relationship between them still remain challenging areas. Innovation management literature highlighted a number of organizational capabilities and their related variables, but to integrate all the key organizational capabilities compressively in the context of SMEs is still an unexplored area.

An integrated and comprehensive framework is thus needed to transform the SMEs. As SMEs are operating in a turbulent and ever-changing environment where they need to develop and nurture their managerial capability which is the abilities of management to integrate and reconfigure organizational resources and competencies. Also, adaptive capability which is the firm’s abilities to respond to changing business requirements by identifying and nurturing its key capabilities, resources, and other organizational processes in order to achieve sustainable organizational innovation. These new circumstances are compelling SMEs to analyze, revamp, integrate, build, and reconfigure their resources and organizational capabilities in order to achieve and sustain a competitive advantage in the form of organizational innovation. Organizational capabilities are now being considered a vital ingredient for competitiveness. Hence, building organizational capabilities is the key success factor to accelerate organizational innovation in SMEs. This study focused on SMEs in the context of Pakistan.

Therefore, the prime objective of this study is to look at SMEs with the lens of RBV and DC in order to propose and empirically validate an integrated capability-based model for investigation of the positive impact of managerial capability (in terms of decision-making, management style, people development, and succession planning) and adaptive capability (in terms of horizon scanning, change management, and resilience) on organizational innovation in the context of small and medium-sized enterprises (SMEs). In particular, the purposes of this study are: (1) to examine the relationship between managerial capability (in terms of decision-making, management style, people development, and succession planning) and adaptive capability (in terms of horizon scanning, change management, and resilience); (2) to examine the relationship between adaptive capability and organizational innovation, and finally, (3) to examine the relationship between managerial capability and organizational innovation. Essentially, this study aims to integrate two vital aspects related to firms, which provide the theoretical framework and the research model for this study. To achieve these objectives, first a rigorous theoretical model was developed based on the previous literature review, second an online questionnaire was also developed in order to get the quantitative data for model validation. The empirical data is gathered through online questionnaires from 191 Pakistani SMEs. This study uses partial least squares structural equation modelling (PLS-SEM) to test the proposed model hypotheses, also importance-performance matrix analysis (IPMA) which provides the significance and importance of all the associated dimensions related to the managerial and adaptive capability in order to explain organizational innovation in the proposed model.

The empirical findings show a strong and significant relationship between managerial capability, adaptive capability, and organizational innovation. Furthermore, organizational innovation has a direct relationship with adaptive capability, and managerial capability has an indirect relationship with organizational innovation via adaptive capability. The SMEs need to be adaptive and agile in order to survive and thrive in dynamic markets. This study also found that all of the dimensions of managerial capability and adaptive capability help to develop and improve the organizational innovation in SMEs.

This study makes three contributions. First, this study sheds light on the conceptualization of managerial capabilities as the consideration of four dimensions, i.e., decision making, management style, people development, and succession planning. Second, the adaptive capability is conceptualized as the consideration of three dimensions, i.e., horizon scanning, change management, and resilience. Third, this study investigated the relationship between organizational capabilities and the related key elements that are essential to stimulating organizational innovation in SMEs.

The study has several limitations among the others; include nature of data collection, as this study only incorporated questionnaire responses which could result in biased findings based upon the understanding of the respondent. Also, the questionnaire should be filled by top management who has complete knowledge of the whole organization. All these limitations pave way for further studies to include one to one interviews with top management to further validate the findings. The results are practical in nature as they may help SMEs to gain a holistic view and relationship of managerial and adaptive capability with organizational innovation. Also how individual dimensions of managerial capability and adaptive capability contribute towards organizational innovation.

    Research areas

  • Managerial capability, Adaptive capability, Organizational innovation, Small and medium-sized enterprises (SMEs), Partial least squares structural equation modelling (PLS-SEM)