EFFECT OF INNOVATION CAPABILITIES ON SMALL & MEDIUM ENTERPRISES SME’S PERFORMANCE, MODERATING ROLE OF ORGANIZATIONAL CULTURE

Abstract

This study investigates the impact of innovation capabilities—specifically product and process
innovation—on the performance of Small and Medium Enterprises (SMEs), with a focus on the
moderating role of organizational culture. SMEs are vital contributors to economic development,
particularly in emerging economies like Nigeria, yet they face structural challenges that hinder
innovation and competitiveness. Using a cross-sectional survey research design, primary data was
collected through structured questionnaires administered to owner-managers of manufacturing
SMEs in Kano State. The study utilized Partial Least Squares Structural Equation Modeling (PLS-
SEM) to test hypotheses and examine the relationships among variables. Findings reveal that
process innovation has a significant positive impact on SME performance, while product innovation
does not show a direct significant effect. Additionally, organizational culture significantly moderates
the relationship between both product and process innovation and performance outcomes. These
results underscore the importance of fostering a supportive organizational culture that encourages
creativity, experimentation, and proactive behavior to unlock the full potential of innovation. The
study offers valuable insights for SME managers, policymakers, and stakeholders, highlighting the
need for cultural transformation and process-driven innovation to enhance firm competitiveness and
long-term sustainability.