Abstract

This paper examines the role business environments (in terms of dynamism and competitiveness) as contingency factors which affect the effectiveness of different types of innovation strategies (in terms of product and process) in delivering business performance. Using the data of 207 manufacturing firms in Australia, this study shows that dynamic environments strengthen the effect of product innovation on business performance. Competitive environments, on the other hand, weaken the effect of product innovation on business performance, but strengthen the effect of process innovation on business performance. Overall, this study demonstrates the strategic fit between dynamism and product innovation strategy as well as between competitiveness and process innovation strategy. On the other hand, competitiveness also shows a strategic mismatch with product innovation. The theoretical and practical implications are discussed.

Introduction

Most studies on innovation have been focused on understanding how internal organizational factors including top management, human resources, technological capabilities, and organizational culture, affect innovation (Aragón-Correaa et al., 2007; Bhattacharya and Bloch, 2004; Canto and Gonzalez, 1999; Damanpour, 1987; Herzog and Leker, 2010; Murat Ar and Baki, 2011; Oke et al., 2013; Subramanian and Nilakanta, 1996). This is because innovation is seen as an activity that is within the control of a firm which management can control or manipulate. In contrast, less is known about the effect of external factors on innovation. Firm’s actions including their innovative activities are contingent upon and are sometimes driven by external factors including customer (market) demand, competitors’ actions, or even government’s legislations (Caruana et al., 2002; Corrocher and Zirulia, 2010; Tao et al., 2010; Tripsas, 2008; Yalabik and Fairchild, 2011). In this study, we focus on the effect of dynamic and competitive environments on innovation strategies (Lumpkin and Dess, 2001; Tidd et al., 2005).