The mediating effect of process innovation on firm specific capability and sustainable innovation in small and medium enterprises

Abstract

Firms are propelled to be concerned about sustainable innovation as the impact of sustainable development effort affects environmental awareness, social impact and economic benefits. However, the effect of innovation needs to be clarified for sustainable innovation achievement considering that not all innovations have impact on sustainable development. This study investigated the mediating role of process innovation between the relationship of firm-specific capabilities of absorptive capacity, intrapreneurship and stakeholder integration with sustainable innovation in small and medium size enterprises (SMEs). In this research, quantitative methodology using questionnaires was adopted to collect primary data from 190 SMEs selected based on purposive sampling from the manufacturing industry in South Sulawesi province, Indonesia. Direct and mediating effects hypotheses were analysed with the equation modelling method of Partial least squares (SEM-PLS) version 2.0. Results of the research failed to support the hypothesized direct relationships of sustainable innovation from absorptive capacity and stakeholder integration. In contrast, intrapreneurship had a significant positive relationship with sustainable innovation. Absorptive capacity and stakeholder integration were found to be fully mediated by the process innovation for sustainable innovation with the exception of intrapreneurship which had partial mediation. Findings confirmed that process innovation is associated with sustainable innovation. The investigation of this study confirmed that practices of process innovation can be driven by firm-specific capabilities of absorptive capacity, intrapreneurship and stakeholder integration for sustainable innovation.