Determinants of innovation and its impact on financial performance in South African family and non-family small and medium-sized enterprises

Abstract

Background: The importance of innovation for enterprises of all sizes is well documented. However, existing research is ambiguous, with several research gaps concerning the role and nature of innovation in the performance of family and non-family small and medium-sized enterprises (SMEs), particularly in a South African context.

Aim: The aim of the study was to identify the determinants of innovation output, the types of innovation that are commonly being utilised and the influence thereof on perceived financial performance.

Setting: A total of 224 responses from family and non-family SMEs in South Africa were analysed in the study.

Methods: The statistical analysis included assessing the validity and reliability of the measuring instrument by using an exploratory factor analysis and Cronbach’s alpha coefficients, respectively. Inferential statistics included calculating the Pearson’s product moment correlations, a t-test, analysis of variance tests and multiple regression analyses.

Results: Predictors or determinants of Innovation output amongst family and non-family SMEs in this study are Innovation-orientated organisational culture, Market orientation and response and Risk-orientated entrepreneurial orientation. A significant and positive relationship was also found between Innovation output (which included product, process, organisational and marketing innovation) and Perceived financial performance. No differences were found concerning the innovation practices of family and non-family SMEs in this study.

Conclusion: Innovation plays an important role in improving the financial performance of SMEs. In addition, financial and human resources are not necessarily the main determinants of innovation in South African SMEs, but rather the creation of an innovation- and market-orientated organisational culture, together with a risk-orientated entrepreneurial orientation.