Do innovations improve firm performance in the Indian manufacturing sector? A mediation and synergy effect analysis

Abstract

PurposeThis study examines the effects of both technological and non-technological innovations on the overall performance of Indian manufacturing firms, and identifies the mediation and synergy effects in the relationship between innovation and performance.Design/methodology/approachThe study applies the partial least squares structural equation modelling (PLS-SEM) technique using Smart PLS3 on a combined data set from the World Bank Enterprise Survey and the follow-up Innovation Survey for India in 2014. Different newly developed statistical tests [PLS predict, importance performance map analysis (IPMA), multi-group analysis (MGA) and confirmatory tetrad analysis PLS (CTA-PLS)] have been used to check the robustness of the empirical results.FindingsThe results of the study suggest that technological innovations (product and process innovation) significantly affect a firm's overall performance, and that innovation strategy significantly mediates the effects, whereas the effects of non-technological innovations (marketing and organisational innovation) on a firm's performance are fully mediated by innovative performance. IPMA results suggest that technological innovations and their respective strategies are very important in improving a firm's performance, whereas non-technological innovations have great importance for increasing the innovative performance of the firms. The MGA results suggest that there are several distinctions in the path relationship and mediation effect among a firm's segment based on technology intensity and firm size. The study results do not find that innovation types have significant synergy effects on a firm's performance.Originality/valueThe study results suggest that managers should focus on technological innovations, along with their respective strategies to improve the overall performance of a firm, whereas non-technological innovations should be given priority for increasing the firm's innovative performance. Moreover, while making policy regarding innovation the people concerned should bear in mind which segment of the firms they are dealing with, as the effects differ across a firm's technology-intensity and size.

Innovations and service firms’ performance: a firm-level mediating and moderating effects analysis for India

“…Rosenbusch et al (2011) argued that the relationship between innovation and firm performance is context-specific and affected by several factors. Fatema and Islam (2021) found that technological innovations directly impact firm performance. In contrast, the effects of nontechnological innovations on firm performance are mediated by other factors.…”

“…It also plays a critical role as an influential hub that transforms the positive effects of innovations into the different aspects of the firm’s performance. In a recent study, Fatema and Islam (2021) found that the effects of nontechnological innovations (marketing and organization innovation) on a firm’s performance are fully mediated by innovative performance.…”

“…Reynoso et al (2015) Innovations and service firms' performance also confirmed that service innovation is strongly related to economic, political and cultural environments in emerging economies. Some studies found significant differences in service innovation between developed and developing countries such as Australia and India regarding the service process, strategy and new service improvement (Alam, 2007, 2010, 2011). Feng et al (2020 found significant positive effects of service innovation on firm performance, but the effects are influenced by the dimensions of performance measures and contextual factors.…”

“…The study has several contributions to the innovation-firm performance research area. There are many studies in the literature focusing on the innovation-performance relationship, but several studies argued that the innovation-performance linkage is context-specific (Rosenbusch et al , 2011; Feng et al , 2020) and is mediated/moderated by several factors (Fatema and Islam, 2021; Storey et al , 2016; Sahoo, 2019; Chen et al , 2020; Gupta, 2021; Chandrashekar et al , 2019). This study adds to the relevant literature by focusing on innovation-performance linkage in the context of the Indian service sector.…”

“…In a recent study, Fatema and Islam (2021) identified that innovation types have differential effects on firm performance in India’s manufacturing sector, and the mediating factors of the innovation types also differ. However, Storey et al (2016) identified that service innovation is different from product innovation, and service firms should have different priorities to maximize the benefits of service innovation.…”