INTRODUCTION:

In today's global and dynamic competitive environment, product innovation is becoming more and more relevant, mainly due to rapid technological changes, intense global competition and the ever-changing consumer demands (Barney, 2013). It is now evident that, in a diverse and rapidly changing technologies, firms that offer products that are suitable to the needs and want of target customers, market them faster and more efficiently than their competitors are in a better position to create a sustainable competitive advantage (Abubakar and Mohammad, 2019; Ravi. 2020). However, the speed of change in manufacturing industry is dramatic all over the world.

The products offered worldwide are becoming increasingly interrelated. New types of business models and corporate strategies are being developed, better market segmentation, industry consolidation, enhanced delivery channels and expanded product offerings are some of the most important marketing strategies adopted by business organisations worldwide (Cingoz and Akdogan, 2013; Qureshi. 2017). Firm innovation capabilities is gradually viewed as the most vital component in achieving sustainable competitive advantage (Chan, Yee, Dai and Lim, 2016; Karmarkar, Jain and Wadhva. 2017).

Due to the frequency and intensity of environmental changes, business organisation including manufacturing SMEs need to adopt improvisation in order to strategically deal with environmental changes. (Barney, 2013). Strategic improvisation which is deﬁned by (Arshad, Razalli, Julienti, Ahmad, and Mahmood, 2015) as “an action taken in real-time situations where it encompasses a high amount of spontaneity and creativity” has been attributed to an opportunity of exploring new ideas as a result of unexpected events (Moorman and Miner, 1998). Strategic Improvisation is increasingly important for managers and firms operating in a rapidly changing environment. It is useful in exploring opportunities out of the conventional ﬁelds, thus creating radically new ideas related to products offered as a result of unexpected events Abubakar and Mohammad, 2019. In line with the above, scholars of organizational theory argued that the increased pressure is as a result of an increased speed in competition, which offers opportunity for firm to use improvisational capability to achieve organisational success (Arshad, et al, 2015). In the past, manufacturing SMEs are complex organizations with routine emergency which requires immediate action and reaction to make sure efﬁciency is achieved. However, to days manufacturing SMEs are in need of front-runners who are keen to overlook the organisational formal rules to achieve sustainable performance (Kunkoro and Suriani, 2018). In essence, traditional management techniques are limited to narrow area, hence providing effective outcomes only under speciﬁc environmental conditions. However, this is not to say strategic planning is bad completely, but strategic improvisation will assist in reducing time and cost linked with strategic planning (Sethi and Iqbal, 2008), which may be disrupted by the intensity and frequency of change in the environment.

In Nigeria, there has been a remarkable improvement in the SMEs environment as a result of the creation of appropriate initiatives to make business environment conducive for them to flourish (Oladimeji, Amida and Essien, 2019. For example, the Federal Government has made it easier for SMEs to access collateral free loan capital in micro financial institutions, at affordable interest rates, created market opportunities for SMEs’ products and made a protection policy to local firms against their foreign counterpart. Thoumrungroje and Racela, (2013) believed that SMEs are effective in identifying opportunities but less successful in developing competitive advantages. It is surprising to note that, despite such good business environment, manufacturing SMEs are still struggling to improve their performance, hence failure to grow or even survive to become big companies. Many challenges which were thought to be responsible for the obvious poor performance of manufacturing SMEs have been widely studied and were found to be related to product innovation decisions (Kumar. 2017; Madhusudan and Panneerselvam. 2017; Singh and Saini. 2018).

Prior research on the relationship between product innovation and firm performance has resulted in contradictory and inconsistent findings (Chan, et al, 2016; Lau, Tang and Yam, 2010; Ar, 2012; Garrido and Camarero, 2010). To address these inconsistencies, we used strategic improvisation as moderating variable in the relationship between product innovation and performance of manufacturing SMEs. Introduction of the moderator variable in the present study is in line with (Baron and Kenny, 1986) suggestion. They emphatically stressed the need to introduce a moderating variable, “when there is an unexpectedly weak or inconsistent relationship between dependent and independent variable”.

Theoretical Foundation and Hypotheses:

Schumpeter (1942) identiﬁes and discusses the importance of innovation at a time when majority of scholar in the field of economics were making emphasis on static price theory. Innovation consists of identification of a new idea and its implementation into a new process, product or service, leading to creation of financial gain for innovative business organisation (Chan, et al, 2016; Lau, et al, 2010). Looking at the above definitions, we can see that innovation is capable of generating and implementing ideas to improve organisational success.

This study was built on dynamic capability theory which (Penrose, 1959) emphasises the importance of internal resources of organisation and organisational learning to be in line with the external environment. With increase in competition among SMEs in the manufacturing industry, it is necessary to adopt and enhance capabilities that integrate, reconfigure and build internal and external resources or competencies to deal with their changing environments (Teece, Pisano and Chuah, 1997). The concept of dynamic capabilities was first introduced by (Teece and Pisano, 2003) who believed that in a dynamic environment a ﬁrm’s competitive advantage depend to a large extent on the ﬁrm’s routines and internal processes that enable it to renew and change its stock of organizational capabilities, which allows it to deliver a constant stream of innovative and new products and services to both potential and existing customers (Wang and Ahmed, 2007).

These dynamic capabilities put emphases on the development of management capabilities a combination of organisational, functional and technological knowledge and skills that are difficult to copy by competitors in order to enhance customer satisfaction and improve firm performance (Helfat and Peterat, 2003; Rao and Madhav, 2015). Only with planned insight into the changes in the environment and with the adoption of changes to update their ability to shape their operating capabilities to adapt to the new environment can manufacturing SMEs survive in dynamic and complex business environments (Oladimeji, et al, 2019).

Product innovation and firm performance:

Innovation is an important task in management for innovation is linked to organisational performance as has been recognised by (Chan et al 2016; Ar, 2012). Also, a study conducted by (Nuryakin, 2018) suggests that market orientation variable shows significant effect on innovation and organisational performance. The study agreed with findings from (Lau, et al, 2010) which display evidences that cooperation gives significant relationship of SMEs innovation in food manufacturing industry. In addition, business performance was found to be a function of innovation in which findings of the research indicate that innovation has significant effect on SMEs performance.

Considering the fact that consumer markets are characterized by intense competition and a growing need for product differentiation (Abubakar and Mohammad, 2019), which according to dynamic capability theory makes innovation strategy an ideal response (Wang and Ahmed, 2007). In most cases, firms resort to innovation in order to neutralize a competitor’s superior market position or to gain a competitive advantage (Nuryakin, 2018). In either case, innovation leads “to the discovery, creation, or assembling of resources collections that enable the innovating firm to effectiveness and efficiency produce value added market offerings” (Abubakar and Mohammad, 2019). Again, (Barney, 2013) believed that firms can achieve competitive advantage and superior performance by occupying advantageous market positions and serving customers who value those market offerings. Manufacturing firms have for long been known for bringing innovative new products to the market. Thus, product innovation is believed to be an effective source of business performance and competitive advantage.

Furthermore, a look at the earlier studies (Ar, 2012; Chan, et al, 2016; Lau, et al, 2010), we expect that product innovation to be a key driver of firm profitability, increased market share and return on investment. Although, new product development can be a costly requiring significant investment in heavy machinery and a risky undertaking, product innovations have been shown to improve firm’s overall performance (Ar, 2012; Chan, et al, 2016). Specifically when a new product is introduced in a market, it normally face little or no competition which results in generating higher profit margins (Maka, and Suresh, 2018; Tandon, Sharma, and Bhulal. 2017; Alam, 2017). Against this background and in line with extant literature we suggest product innovation as a driver of performance of manufacturing SMEs. Thus:

H₁: Product innovation positively influences performance of manufacturing SMEs:

Moderating role of strategic improvisation:

Strategic improvisation has been described as an alternative to strategic planning in order to adapt to the dynamism of the business environment (Arshad, et al, 2015). It has been seen by (Moorman and Miner, 1998) as an important strategy for gaining competitive advantage. Many organisations adapt strategic improvisation in order to cope with ever changing business environment that requires rapid and efficient actions. Formulation and implementation of product innovation will come at a very high cost due to inflexible management. If a business firm has to execute product innovation strategy in a highly competitive and dynamic environment, it is likely that it will insure more losses than benefits. Therefore, it is necessary to employ strategic improvisation and explore its effects on product innovation and performance of manufacturing SMES.

Cingoz and Akdogan, (2013) viewed environmental dynamism as speed of product changes, the changing frequency of customer preference and operational environment. According to (Zahra and Covin, 1995), business firms under turbulent environments need to adopt strategic improvisation in order to create new products or modernize the existing one so as to respond to environmental change. Thus, manufacturing SMEs will be better able to satisfy customers’ continuously changing preferences, making timely and effective responses to competitors’ strategies by adopting strategic improvisation. Furthermore, dynamic environments require them to maintain higher levels of strategic improvisation, in order to effectively respond to changes in customer needs as well as technological transformation so as to realize higher levels of performance amidst intense competition. MckNight and Bontis, (2002) found that most business organisations are facing scarcity of resources, time pressure and unique problems with no pre-planned solutions. Strategic improvisation offers creative problem solving capability as a result of its ability to spontaneously put together knowledge, processes and structure (Ibrahim, Mahmood and Bakar, 2018; Andu, 2019)

Most of the studies on strategic improvisation focused on its relationships with organisational performance, and the finding indicate unclear and mixed results (Arshad, et al, 2015; Ibrahim, et al, 2018). However, few studies (Vera and Crossan, 2005; Ibrahim, et al, 2018) established an indirect connection between improvisation and firm performance through some moderating factors such as organisational culture. Again, other studies paid attention to the relationship between strategic improvisation and new product success teams, product development and firm performance measures (Akgun, Byrne, Lynn and Keskin, 2007; Leybourne and Smith, 2006; Vera and Crossan, 2005). Only a study by (Leybourne and Smith, 2006) uses improvisation as a mediator in a relationship between intuition and project success and their findings show no statistically significant between improvisation and project success outcomes. Hence, manufacturing SMEs would benefit more from adopting strategic improvisation for fast response to the needs of customers especially in a rapidly changing environment. We therefore proposed:

H₂: The interaction between product innovation and performance is moderated by strategic improvisation.

Figure 1: Research Model

METHODOLOGY:

Nigeria is an emerging economy that provides a rich context to study the moderation effect of strategic improvisation in the relationship between product innovation and performance of manufacturing SMEs. Nigeria has a largest economy in Africa, which is growing at very high speed, and has a mix of low, medium and large scale manufacturing firms. We choose to collect primary data for this study through a survey instrument, because secondary data for principal variables were unavailable. Our survey instrument had questions, using Likert scales, about firm characteristics, product innovation, strategic improvisation, and firm performance. Manufacturing SMEs in the context of Nigeria’s north eastern states responded to our survey. Collected data ware analysed with SPSS Version 23 software packages, mainly, using analytical methods such as descriptive statistics, correlation and regression analysis.

Data collection and sample:

Researchers in emerging economies experience significant obstacles in data collection (Hoskisson, Eden, Lau, and Wright, 2000). This is due to the fact that comprehensive and current lists of firms are usually unavailable. Moreover, managers and employees of firms are hesitant to disclose information pertaining financial performance and firm size because of prevalent tax evasion in these countries. The suitable means for data collection in these circumstances are personal interviews and sending questionnaire to managers in personal network.

A total of 456 copies of the questionnaires were distributed, mainly to the upper level managers in manufacturing SMEs through personal networks using a scrolling method. We requested the respondents to answer questions anonymously when we were distributing the questionnaires. In total, 248 questionnaires were retrieved, in which 65 are not properly completed. Therefore, 182 copies of questionnaire were considered effective for the study.

Measurement:

Variables used in the study have been employed previously by many researchers. Therefore, the earlier measures were adopted with minor modifications to the wording to increase their applicability to the Nigerian case and also making sure that they give an acceptable quality of measurement. Product innovation strategy construct consisted of 3 items adapted from Covin and Sleven, 1989; Zahra and Covin, 1993), while firm performance construct with 9 items was adapted from (McDougall, Covin, Robinson and Herron, 1994) we also adapt the moderating variable construct strategic improvisation comprising 7 items from (Vera and Crossan, 2005).

Control variables:

These are ﬁrm-speciﬁc and external forces that may affect a ﬁrm’s performance regardless of its product innovation and strategic improvisation (Vera and Crossan, 2005). We therefore controlled for firm age, ﬁrm size, and industry.

Firm Age: Firm Age was used as a control variable. Speciﬁcally, the age of the ﬁrm was calculated from the date the operation starts.

Firm Size: We measured firm size by the number of full time employees in the organisation. This is done in order to avoid problems of multi-collinearity when testing the hypothesis.

Industry:

Since the ﬁrms participating in the survey came from different industries, it became necessary to control, to some point, for the different industrial clusters under which the ﬁrms operates.

ANALYSES AND RESULTS:

This study attempts to understand the relationships among product innovation strategy, strategic improvisation, and firm performance. Table 1 indicates the means, standard deviations, and correlations of all the variables. Belsley, (1980), criteria suggest that there are no problems of multi-collinerarity in any regression model if VIF lies between 0 and 10 and condition index is 30. Table 2 contains the results of the ordinary-least-square regression analysis for the effects of product innovation on firm performance and the moderating effect of strategic improvisation on product innovation and performance of manufacturing SMEs. Model 1 is the base model that includes the control variables and the dependent variable, such as firm age, firm size and industry. Model 2 consists of all the control variables and the independent variable. Model 3 comprises all the control variables, the independent variable, and the moderating variable. Model 4 consists of all the control variables, the independent variable, and the moderating variable, plus the interactive term.

As indicated in Table 2, Model 2 shows the effects of product innovation on firm performance, which is signiﬁcant at the p, 0.000 level (R², 0.529). Compared with the base model 1, the explanatory power of Model 2 for firm performance has increased. The R² increased from 0.529 to 0.773. Also, F in Model 2 is 8.961 and signiﬁcant at the p, 0.000 level. The coefﬁcient for product innovation is positive and signiﬁcant for firm performance (β, 0.159, p, 0.000). Therefore, we can conclude that product innovation has significant positive effect on firm performance. These ﬁndings support H₁ and indicate that in general manufacturing SMEs will achieve a higher level of performance under a stable business environment, if they scale up their product innovation capability.

Table 2: Regression Results

	Performance
Variables	Model 1	Model 2	Model 3	Model 4
Firm Age	0.013	-0.013	-0.070	-0.066
Firm Size	0.273**	0.218**	0.131	0.126
Industry	0.187	0.159	0.057	0.053
Product Innovation		0.159	0.023	0.161
Strategic Improvisation			0.446**	0.556**
Product Innovation x Strategic Improvisation				-0.214
F - Value	10.497**	8.961**	14.324**	11.899**
R²	0.493	0.529	0.773**	0.774**
R² Change		0.036	0.280	0.001
P - Value	0.000	0.002	0.000	0.052
Note: n = 182, p<0.05

We follow the (Sharma, Duran, Gur-Arie. 1981) procedure to examine the moderating effect of strategic improvisation on the relationship between product innovation and firm performance. The study determines whether a signiﬁcant interaction exists between the hypothesized moderating variable, strategic improvisation, and the predictor variable by the moderating regression analysis procedure. In Model 3, R² change is signiﬁcant. However, Model 4 shows that the interaction term between product innovation and strategic improvisation is not signiﬁcant in predicting firm performance as indicated by r2 change of 0.01 and p value of 0.052. Therefore, the empirical results do not support H₂.

DISCUSSIONS AND CONCLUSION:

This study conducted an empirical investigation of the link between product innovation and performance of manufacturing SMEs. Also, the study examined the moderating effect of strategic improvisation on product innovation and performance. Results of the empirical study indicates that product innovation have a significant positive effect on the performance of manufacturing SMEs. This means manufacturing SMEs with product innovation capabilities tends to achieve better performance. This is consistent with the previous studies such as (Ar, 2012; Chan, et al, 2012) which revealed the importance of innovation in providing positive contribution on corporate performance. This study however contradicts (Lau, et al, 2010) which shows that firms cannot improve their product innovation by sharing information with customers and suppliers. That is to say, a sense of the innovative culture will be increased and help in updating organizational and technical ﬂexibility. This will pave the way for building and promoting product innovation which is a speciﬁc strategy for strengthening the internal driving force for organisational performance.

Finally, we hypothesized that the interaction between product innovation and strategic improvisation is signiﬁcantly and positively related to firm performance. Unexpectedly, findings of the study relating to the role of strategic improvisation on the relationship between product innovation and performance of manufacturing SMEs appear to be insignificant. A plausible reason for this unexpected finding is that manufacturing SMEs in Nigeria may have organisational and managerial problems that can hider leveraging the benefits of strategic improvisation, possibly due to the nature of operating business environment in the country. As (Chan, et al, 2012) found, the organisational performance of product innovation may be determined mainly by frequency and intensity of environmental changes. It is also likely that lack of strategic improvisation in the relationships between product innovation and performance of manufacturing SMEs may be due to inadequate managerial capabilities and product innovation experience.

Findings of this study are informative for manufacturing SMEs’ researchers and managers in two ways. First, they point out that future studies examining the effectiveness and efficiency of manufacturing SMEs’ use of a product innovation in emerging economies should broaden its purview to consider complexity and diversity in environmental conditions. Secondly, our findings suggest that successful implementation of a product innovation in manufacturing SMEs in emerging markets require cautious and careful evaluation of the potentially conflicting effects of both internal and external environment and organisational strategies.

Limitation and future research:

Findings of this study should be understood within its limitations. The restriction of our sample to north eastern region of the country limits the generalizability of our results. Hence, replicating and extending this study to cover other regions and perhaps other African countries may provide a ground for external justification. Again, this study considers strategic improvisation as moderator. Other variables such as organisational culture, environmental dynamism and ambidexterity should be used to examine their relative effects on the relationship between product innovation and performance of manufacturing SMEs.

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Received on 01.01.2021 Modified on 30.01.2021

Asian Journal of Management. 2021; 12(3):237-242.

DOI: 10.52711/2321-5763.2021.00036

Variables	1	2	3	4	5	6
Firm Age	1
Firm Size	0.279^**	1
Industry	0.205^**	0.387^**	1
Product Innovation	0.302^**	0.464^**	0.348^**	1
Performance	0.128	0.349^**	0.296^**	0.311^**	1
Strategic Improvisation	0.320^**	0.461^**	0.435^**	0.513^**	0.520^**	1
Note: n = 182, p<0.05