Understanding the Effect of Entrepreneurial Orientation and Innovation Capability on Firm Performance : A Study on Small and Medium Enterprises

Numerous studies in the strategy literature have investigated the effect of entrepreneurial orientation on firm performance (Rauch, Wiklund, Lumpkin & Freese, 2009; Saeed, Yousafzai & Engelen, 2014). The present study is an attempt to examine the relationship amongst entrepreneurial orientation, innovation capability and SMEs performance. The researchers distributed 500 questionnaires to SMEs from various industries. The study was carried out among entrepreneurs of SMEs across Uttarakhand. Sample was drawn from the list of firms‟ published by Directorate of Industries, Uttarakhand using random sampling technique. Of the 500 questionnaires distributed, 234 respondents filled the questionnaire, constituting the response rate of 46.8 percent. The findings demonstrate a positive and significant impact of entrepreneurial orientation and innovation capability on SMEs performance. The present study empirically demonstrates the importance of entrepreneurial orientation and innovation capability in enhancing SMEs performance. The study advocates that entrepreneurial orientation and innovation capability paves the way to analyze market needs and facilitates firm's processes and operations to effectively cater to the market, and eventually contributes to better performance. The study further advocates that in order to improve SMEs performance, the firms must pay serious attention to having an entrepreneurial orientation and directing this orientation towards matching the market needs with firm's internal capability in order to enhance its performance. The study also offers a holistic view on the importance of innovation capability in enhancing SMEs performance in developing countries like India