SAJESBM The Southern African Journal of Entrepreneurship and Small Business Management 1015-3977 2071-3185 AOSIS SAJESBM-8-50 10.4102/sajesbm.v8i1.50 Original Research Innovation and organisational performance: A critical review of the instruments used to measure organisational performance Sethibe Tebogo 1 Steyn Renier 1 Graduate School of Business Leadership, University of South Africa, South Africa Corresponding author Tebogo Sethibe, tsethibe@gmail.com 28102016 2016 8 1 50 14032016 15082016 © 2016. The Authors 2016 AOSIS. This work is licensed under the Creative Commons Attribution License. Background

Innovation is recognised as one of the most important determinant of organisational performance. Yet, the results of studies that investigate the relationship between innovation and organisational performance are inconclusive. The inconsistency has been attributed to a number of factors, which include, among others, the measures used to evaluate organisational performance.

 Aim

This study was set out to identify, categorise and critically analyse the instruments used to assess organisational performance when investigating the relationship between innovation and organisational performance.

 Setting

The study focuses on all scientific publications reporting on organisational performance, inclusive of both financial and non-financial indicators of performance, and are not limited to any specific country or industry.

 Methods

The systematic literature review methodology was used to identify studies which investigated the relationship between innovation and organisational performance. Once identified, articles were analysed on the way organisational performance was measured. Classification was done with reference to financial and non-financial indicators, accounting and market-based, as well as objective and subjective measures.

 Results

The findings show that profitability, sales growth and return on assets (ROA) are the most preferred accounting-based financial measures of organisation performance. In addition, Tobin’s Q was found to be the most favoured market-based financial measure of organisational performance. The study further reveals that market share, customer satisfaction and productivity are the most popular non-financial-based measures of organisational performance.

 Conclusion

The use of measures of organisational performance is often left to the discussion of the researcher, which is not implicitly wrong, but does little to contribute to the body of knowledge on this important topic. Researchers are firstly urged to clearly define which aspects of organisational performance they intend to study, secondly to use established instruments or often used indicators of organisational performance, and thirdly to combine both objective and subjective measures of organisational performance. This would allow for researchers to build on the work of other and strengthen the body of knowledge in this area.

 Introduction

Organisational performance is an important indicator of organisational success (Stegerean & Gavrea 2010). Apart from organisational performance, organisational success also relates to employee skills levels, personnel development, quality of strategic planning and the ability to understand and adapt to the nature and dynamics of the business environment (Carvalho et al. 2016). However, organisational performance is arguably the most important indicator of organisational success and one of the most important variables in management research (Stegerean & Gavrea 2010).

Research indicates that organisational performance is influenced by innovation (Durán-Vázquez, Lorenzo-Valdés & Moreno-Quezada 2012; Likar, Kopa & Fatur 2014; Nybakk & Jenssen 2012; Oke, Walumbwa & Myers 2012; Yen 2013). Undertaking research on these constructs is important to organisations as managers should be aware of the impact of different variables on organisational performance in order to manage them in an effective manner (Bigliardi 2013; Ndregjoni & Elmazi 2012). Yen (2013), for example, states that the facilitation of innovation is an important management function that can be directly linked to organisational performance.

An important aspect to consider when evaluating innovation efforts and organisational performance is the time factor, given that there is a time lag between innovation initiatives and the outcome that follows (Likar et al. 2014). In fact, O’Connor et al. (2008) state that the time lag between innovation and its impact on organisational performance ranges from 3 to 6 years. It is important to note this, as a focus on short term indicators (e.g. return on investment [ROI], sales growth and operating income) may be inappropriate and may indicate that innovation strategies are not working, while the effect may only be visible in the longer term (Ndregjoni & Elmazi 2012).

Although the study of organisational performance has been at the core of management research, very little has been done with regard to appropriate measures to assess the effectiveness of innovation initiatives. In addition, a cursory review of the literature shows that researchers focus on the discussion around typologies of organisational performance on financial and non-financial aspects, with very little attention to other dimensions, such as objective and subjective measures. The present study, therefore, aims primarily to investigate the most frequently used instruments. The results of this investigation will then be used as a lens through which to investigate which typologies (financial vs. non-financial; objective vs. subjective) of organisational performance were adopted and further to investigate whether the instruments selected played a role in the outcome of the study. This will result in the compilation of a more comprehensive and updated literature review that can form the basis for future research when selecting measures of organisational performance.

Problem statement and objective

The results of studies that investigate the relationship between innovation and organisational performance are inconclusive, with some studies (Carvalho et al. 2016; Cortez et al. 2015; Mafini 2015) showing a positive relationship, while others showed mixed results or no relationship with no definite conclusion (Hervas-Oliver, Sempere-Ripoll & Boronat-Moll 2014; Simachev, Kuzyk & Feygina 2015). This inconsistency has been attributed to a number of factors, including, among others, the measures used to evaluate organisational performance.

In an attempt to understand these inconsistences, Rubera and Kirca (2012) conducted a meta-analysis in a quest to better understand a firm-innovativeness-performance relationship, drawing on the chain-of-effects model as a unifying framework. The study revealed that the size of the firm, the sector in which the firm operates and the nature of innovation (radical innovation, for example) adopted can influence the relationship between innovation and organisational performance. However, although Rubera and Kirca’s study is significant in many ways, the study did not investigate whether the type of instruments used to measure organisational performance can also influence the relationship between these constructs. This reveals a gap in the literature and shows the need for a critical review of the influence of the type of instruments used to measure organisational performance on the reported relationship between innovation and organisational performance.

Therefore, the objective of this study is twofold: firstly, the study seeks to investigate the most frequently used instruments and, secondly, the study will investigate whether the type of instruments used does influence the nature of the relationship between these constructs.

 Measures of organisational performance

The construct of organisational performance is central to the understanding of organisational success and the factors responsible for that variation (Hoopes, Hadsen & Walker 2003). In order to get an accurate and comparative gauge of the variation mentioned, valid and reliable measures are necessary (Saunders 2012). Although several methods for measuring organisational performance exist, these methods can be classified into two main categories, namely financial and non-financial performance measurement (Maltz, Shenhar & Reilly 2003; Shin et al. 2015).

Financial performance measurement

Despite the general consensus among scholars that a firm’s performance is a multidimensional construct, one of the most extensively used measures is the financial component – the fulfilment of the economic goal of the organisation (Gentry & Shen 2010). This is in line with Davidson’s (2003) argument that the primary goal (aim) of management is to generate profit and to maximise shareholder value. Important to note is that scholars who embark on empirical studies employ a number of different measures to evaluate financial performance (Berger & Bonaccorsi di Patti 2003; Davidson 2003).

The literature research reveals that to assess the financial aspects of organisational performance, researchers generally use either accounting-based measures, such as profitability, sales growth, return on assets (ROA), return on sales (ROS), return on equity (ROE) and/or ROI, or stock market measures, such as Tobin’s Q and price earning (P/E) ratio (Hult et al. 2008; Likar et al. 2014; Nawaz, Hassan & Shaukat 2014; Tsao & Lien 2013).

In the 1980s, researchers primarily used accounting-based measures of financial performance (Hoskisson et al. 1999). However, with the rise of shareholder activism in the late 1980s and early 1990s, organisations started adopting shareholder value maximisation as a measure of financial performance (Useem 1993). This paradigm shift promoted the adoption of market-based performance measures in management research (Hoskisson et al. 1999).

Despite its limitations, profit maximisation remains one of the key measures of organisational performance (Garg, Joubert & Pellissier 2004). Various researchers use growth as a sole measure of performance, while others choose to combine growth and profitability (Likar et al. 2014). However, most researchers prefer to combine ROS, ROA, ROE and ROI because they complement one another. The use of a single ratio generally does not provide sufficient information to allow investors to judge the overall performance of the firm (Marx 2004). For instance, ROA allows analysts to evaluate the effectiveness and efficiency of the firm’s management and employees in generating profit by productively using assets (Firer et al. 2008). On the contrary, ROS allows analysts to evaluate the effectiveness and efficiency of the firm’s management and employees in generating profit by means of sales (Karanja 2011; Marx 2004).

For the sake of clarity, a short explanation of the aforementioned measures has been provided in Table 1.

Financial instruments.

Instrument Description
Return on assets ROA is an accounting measure of a firm’s financial performance based on income before tax and interest, and it indicates how profitable a firm is in relation to its assets (Alexander & Nobes 2010). It shows how effective managers are at generating revenue from the invested assets.
Return on sales ROS is a performance variable used to evaluate the firm’s operational efficiency (Karanja 2011). It indicates how much profit is being generated for each rand of sales.
Return on investment ROI is defined as net operating income divided by average operating assets (Garrison, Noreen & Brewer 2008). ROI measures how efficiently the organisation utilises its available assets to generate income. Thus, the greater the return on investment, the better (Marx 2004).
Return on equity ROE, on the contrary, measures the return earned on the owner’s investment. It relates to the return generated for shareholders with finance made available by the shareholders (Alexander & Nobes 2010). It is calculated by dividing the net profit after tax by the shareholders’ equity. Generally, the owners are better off with a higher ROE.

According to Campbell and Mínguez-Vera (2008), accounting-based measures are useful because they provide useful objective measures of organisational performance. However, various authors (Fernandez 2001; Frigo 2003; Smith 2007) argue that accounting measures only reflect the history, both in terms of income statements, which explain what happened in a certain year, and those of the balance sheet, which reflects the state of the firm’s assets and liabilities at a certain point in time. As such, it is impossible for accounting-based measures to measure value creation.

The challenge of uncovering the true financial value of innovation is a result of practices such as international financial reporting standards (IFRS) not adequately reflecting innovation expenditure (Frigo 2003; Smith 2007). IFRS forces the recording of the immediate expense of investment and thus creates a challenge owing to the time lag between innovation expenditure and the effect it has on financial performance. This leads to a situation in which researchers will need to correlate initial expenditure with a product that will only emerge a few years later (Selby 2010).

Despite the need to measure the effects of innovation, Morris (2008) convincingly argues that measuring innovation presents a problem in itself, because innovation involves venturing into the unknown. Therefore, if one tries to pin down these unknowns too quickly, they may become harder to recognise. In addition, when measuring the impact of innovation, the innovation lifespan should also be put into perspective (Eggink 2011). For instance, sustaining innovation is continuous in nature and as such there is no beginning and no end to the innovation process (OECD/Eurostat 2005). Moreover, different types of innovation will have different lifespans. For example, some innovations will last for a very long time while others may have a short lifespan.

Several market-related measures are proposed in order to account for the long-tern benefits of innovation in an organisation. These include Tobin’s Q and price earning (P/E):

Advocates of Tobin’s Q argue that stock market measures incorporate all relevant information and thus, unlike accounting-based measures, are not limited to a single aspect of financial performance (Lubatkin & Shrieves 1986). Tobin’s Q is a ratio that indicates the market value of the firm in relation to the replacement cost of the tangible assets (Tobin 1969). Tobin’s Q is computed by dividing market capitalisation by the replacement cost of the firm’s assets (Cho & Pucik 2005). Tobin’s Q is based on the idea that stock markets, if the takeover market for companies was efficient, would operate at a Tobin’s Q of 1 (Karanja 2011). In other words, the value of 1 for Tobin’s Q indicates that the market value of the firm is greater than the value of the recorded assets in the book of accounts. High Tobin’s Q value is an indication of higher capital investment. In contrast, a Tobin’s Q value of less than 1 indicates that the market value of the firm is less than the recorded assets in the book of accounts.

Price earning (P/E), on the contrary, is calculated by dividing share price by earnings per share (EPS). In this method, the relationship between the market share price of a share of stock and the stock’s current EPS is often stated in terms of P/E ratio (Garrison et al. 2008). The strength of the P/E ratio is its ability to use current and historical data to predict the future. Consequently, investors widely use the P/E ratio as an indicator of future prospects. A high P/E ratio means that investors are willing to pay a premium for a company stock, mainly because the company is expected to have higher than average future earnings growth. According to Selby (2010), when the company’s outlook holds the likelihood of future profit, a generic investor will be more inclined to buy that stock.

Despite the intuitive appeal of the above-mentioned measures of the stock market (Lubatkin & Shrieves 1986), the assumption of market-efficiency has been questioned by prominent scholars in finance (Tobin 1969). Bettis (1983) argues that, even if the market-efficiency theory holds, stock price does not necessarily reflect its fundamental value because it is influenced by what management chooses to disclose to the investors. Acknowledging that neither accounting nor market-based measures are perfect, management researchers have accepted measures based on both accounting and stock market as valid for assessing organisational performance (Hoskisson et al. 1999). In support of this view, Shook et al. (2004) agree and argue that in order to improve the quality of construct measurement, a stream of management researchers prefer using multiple indicators to measure key constructs and then use the structural equation modelling technique (SEM) to do the analysis. For instance, Tsao and Lien (2013) used both ROA and Tobin’s Q whereas Talke, Salomo and Kock (2011) and Padgett and Moura-Leite (2012) decided to use Tobin’s Q exclusively, mainly because of its ability to capture the value of long-term investment such as innovation.

 Non-financial performance measurement

According to Ndregjoni and Elmazi (2012), non-financial measures must also be assessed in order to evaluate overall performance, for two main reasons. Firstly, several interest groups are involved in the business and they all have particular goals and expectations related to the organisation. Secondly, the strategic business areas are not necessarily financial in nature. As a result, several approaches to non-financial indicators exist, such as customer satisfaction and retention, market share, productivity, operational effectiveness and efficiency, reputation, branding and quality (Battor & Battor 2010; Tsai & Tsai 2010; Oke et al. 2012; Ul Hassan et al. 2013).

Alam (2003), after examining the literature on new product performance measures, proposes three performance dimensions for determining the success of new products, namely financial criteria, customer criteria and opportunity criteria. As indicated by other scholars, financial criteria include financial indicators of new products such as profitability, sales, cost, ROI and market share. The second dimension (customer criteria) refers to customer satisfaction and how new products attract new customers and create new market opportunities. The third dimension (opportunity criteria) is much broader in scope as it relates to overall opportunity that can be created by new products. These include, among others, unlocking opportunities for existing products, providing a platform for developing other new products and acquiring skills and experience, as a result of new product development projects.

More recently, Gentry and Shen (2010) conducted an extensive literature review on organisational performance with the aim of contributing to the debate concerning appropriate measures of organisational performance. They concluded that the use of both financial and non-financial measures is the most appropriate and sound approach to measure organisational performance. However, the authors further argue that the use of financial aspects of performance as a sole measure is not necessarily wrong, but they emphasise that researchers should always clearly define which aspects of organisational performance they intend to study, and then develop and test the hypotheses around that. All of the above should be viewed against the background research against which organisational performance is measured, namely objectively and subjectively.

 Objective versus subjective measures

Objective measures are the absolute values of a firm’s actual performance (Battor & Battor 2010) and subjective measures generally ask respondents to assess their company’s performance relative to that of their competitors (Greenley 1995). For instance, objective financial measures are audited financial data such as sales, profit or asset values (Rajan & Reichelstein 2009). By contrast, the term ‘subjective measure’ is used to mean that the company’s performance is derived from direct observations by management, financial analysts or employee perceptions about organisational performance (Dawes 1999). By virtue of its nature, objective measures are verifiable whereas subjective measures cannot be verified (Rajan & Reichelstein 2009).

 Method

This study adopted two generic steps central to the systematic review methodology (Nightingale 2009), namely defining the search strategy, and then selecting relevant studies by applying the inclusion and exclusion criteria. Originating in medical science, a systematic review differs from conversional reviews in that it aims at synthesising research in a systematic, transparent and reproducible manner (Tranfield, Denyer & Smart 2003). A systematic literature review uses explicit, thorough methods to identify, select, appraise and synthesise a set of research studies on a well-defined topic (Robson et al. 2007). The primary aim of this review was to identify and report on the instruments used in prior studies that investigated the relationship between innovation and organisational performance, and to identify the most frequently used instruments as well as the rationale behind choosing those instruments.

The keywords ‘innovation’ (innov*) and ‘performance’ (perform*) were used in the search. The options (criteria) selected for the search were full text, peer-reviewed and scholarly journals. Target articles needed to match both keywords in a title. Fifty-eight databases on the major database (presented in Box 1-A1), EBSCOhost, were searched for articles and 120 articles were retrieved. Articles whose abstract indicated that either financial or non-financial performance was used as a measure of organisational performance, which were published in English in the last 5 years and where the full text was available were included in the study. Only 71 articles (Table 1-A1) met these criteria.

 Findings and discussion

In the sample of 71 studies, five studies (Articles 10; 17; 19; 40 and 46) focused exclusively on non-financial measures, 29 studies (Articles 2; 6; 7; 9; 11; 12; 15; 20; 25; 26; 27; 30; 32; 34; 36; 39; 43; 45; 47; 51; 52; 55; 56; 60; 61; 65; 69; 70 and 71) focused exclusively on the financial component and 37 studies (Articles 1; 3; 4; 5; 8; 13; 14; 16; 18; 21; 22; 23; 24; 28; 29; 31; 33; 35; 37; 38; 41; 42; 44; 48; 49; 50; 53; 54; 57; 58; 59; 62; 63; 64; 66; 67 and 68) combined both the financial and non-financial instruments to measure organisational performance. The financial (accounting and market) measures are discussed first, followed immediately by the non-financial measures.

Financial measures

The different instruments used to measure financial performance in the sample of 71 studies are presented in Table 2. From the sample of 71, a total of 16 financial instruments (profit, sales growth, ROA, ROI, turnover, ROE, ROS, Tobin’s Q, operating costs, market to book, income, cash flow, basic earning power, long-term debt, inventory turnover and EPS) were used to measure financial performance.

Financial instruments used to measure organisational performance.

Number Financial instruments Article reference number Number of articles
1 Profitability 3, 4, (7), 8, 12, 13, 14, 16, 24, (25), (26), (27), 28, 31, 37, (39), 42, (43), 44, 53, (55), (56), 57, 59, 62, 66, (68), (69), (70) 29
2 Sales/sales growth (2), 3, 4, (11), 13, 14, 24, (25), (27), 28, (30), 31, 35, 38, 41, 42, 44, 48, 49, 53, (55), (56), 58, (60), 62, (69), (71) 28
3 Return on assets (6), (9), (11), (15), 18, (20), (26), 31, 48, 49, 52, 58, (65), (69), (70), (71) 16
4 Return on investment 3, 4, (6), (27), 33, (34), 38, 41, (56), (70) 10
5 Revenue/turnover 5, 18, 23, 41, (45), 47, (61), 63, (69), (71) 10
6 Return on equity (6), (15), 18, (20), (26), (69), (71) 7
7 Return on sales (9), (34), (56), 66, (69), (71) 6
8 Tobin’s Q (34), (36), (51), (65) 4
9 Operating costs 58, 64 2
10 Income (6), 18 2
11 Cash flow 18, 66 2
12 Market to book (9) 1
13 Basic earning power 21 1
14 Risk/long-term debt (6) 1
15 Inventory turnover 29 1
16
 Earnings per share
 (20)
 1
Total - - 127

Note: Numbers in brackets represent studies that exclusively used financial measures.

In support of the argument by Cho and Pucik (2005), Table 2 shows that profitability, despite its weaknesses in measuring long-term investment, is by far the most preferred financial indicator used to measure financial performance, with a staggering 29 studies opting to use this measure, followed by sales growth with 28 studies. The most cited reason for using profitability and sales growth to measure organisational performance is twofold. Firstly, authors argue that innovative behaviour leads to improved operational performance such as cost efficiency, quality improvement and speed to market, which ultimately results in higher profitability and sales growth (Cambra-Fierro et al. 2011; Ul Hassan et al. 2013). Secondly, authors (Basterretxea & Martinez 2012; Cortez & Cudia 2010; Forsman & Temel 2011) argue that both profitability and sales growth are the most common indicators used in prior studies to measure organisational performance and, as such, enable a comparison between the output of prior studies and the study in question.

In agreement with literature, ROA completes the top three most commonly used instruments to measure financial performance. Consistent with the rationale for using profitability and sales growth instruments, ROA, ROS, ROI and ROE are generally selected for their popularity in prior studies that investigated innovation and organisational performance (Postruznik & Moretti 2012; Rubera & Kirca 2012). Similarly, revenue is preferred because it can be directly linked to innovation activities and it is also a commonly used indicator in prior studies (Eris & Ozmen 2012; Likar et al. 2014).

Tobin’s Q is the most preferred market-based measure of financial performance, with five studies opting to use this measure. In contrast to the reasons provided for using accounting-based measures, Tobin’s Q is used mainly because of its ability to capture the value of long-term investment, such as innovation investment (Padgett & Moura-Leite 2012; Sivakumar et al. 2011; Talke et al. 2011). Furthermore, Table 2 illustrates that financial instruments, such as operating cost, market to book, income, cash flow, basic earning power, inventory turnover and EPS are not so popular among innovation scholars, despite Selby (2010) presenting a good argument for the use of EPS as a measure of organisational performance, owing to its strength in capturing future expected earnings.

 Non-financial measures

Table 3 presents the instruments used to measure non-financial aspects of organisational performance when investigating the relationship between innovation and organisational performance. From the sample of 71 studies, a total of 10 instruments (market share, customer satisfaction, productivity, operational efficiency, employment growth, quality, competitiveness, reputation or branding, product attractiveness and quick to market) were used to measure non-financial aspects of organisational performance. Table 3 reveals that market share (14 studies), customer satisfaction and retention (12 studies) and productivity (10 studies) are the most popular instruments used to measure non-financial components of organisational performance. Interesting to note is that there are no reasons provided for why the measures were selected. However, one can infer that market dominance, customer satisfaction and productivity were chosen because they are easy to measure and they provide useful information to gauge whether a company is doing well or not.

Non-financial instruments used to measure organisational performance.

Number Non-financial instruments Article reference number Number of articles
1 Market share 1, 3, 4, 8, 18, 24, 27, 33, 35, 38, 41, 53, 591, 67 14
2 Customer satisfaction or retention 2, 13, 18, (19), 23, 29, (40), 44, 50, 62, 64, 66 12
3 Productivity (10), (17), 21, 22, 35, 42, 58, 64, 66, 68 10
4 Operational efficiency 17, 18,(19), 23, 29, 60 6
5 Employment growth 5, 22, 23, 35, 58, 71 6
6 Quality (17), (19), 23, 64, 66 5
7 Competitiveness 31, 48, 49, 66 4
8 Reputation/branding 23, (46), 50 3
9 Product attractiveness (17), 46 2
10
 Quick to market
 (17)
 1
Total - - 63

Note: Numbers in brackets represent studies that exclusively used non-financial measures.

Other studies used competitiveness, branding, product attractiveness and quick to market as instruments to measure organisational performance. Studies that focused exclusively on non-financial aspects of organisational performance prefer to use the top three frequently used measures, namely customer satisfaction (Modi 2012; Oke et al. 2012; Walker, Damanpour & Devece 2011), market share (Adner & Kapoor 2010) and productivity (Ito & Lechevalier 2010).

 Subjective versus objective

Only three studies (Articles 50, 53 and 54) used both objective and subjective measures. In two studies (Articles 50 and 53), the results of the study revealed mixed results and in one study (Article 54), the results showed that innovation leads to superior organisational performance. Despite the importance of using both objective and subjective measures, a considerable number of studies adopted either subjective or objective measures of organisational performance.

 Subjective measures

Table 4 presents the article reference number of studies (see Table 1-A1) that used the subjective measures of organisational performance and the findings of the studies that investigated the relationship between innovation and organisational performance.

Subjective measures of organisational performance.

Article reference number Findings Number of articles
1, 2, 3, 4, 5, 8, 10, 12, 13, 14, 16, 18, 23, 24, 28, 29, 31, 33, 34, 35, 37, 38, 39, 40, 41, 42, 44, 46, 48, 49, 55, 56, 57, 58, 59, 62, 64, 66, 68, 70, 71 Innovation is significantly and positively related to organisational performance 41
17, 19
 The results were mixed (positive, negative or no relationship)
 2
Total - 43

As stated in the literature, subjective measures are perceived organisational performance, where respondents are requested to assess their company’s performance relative to that of their competitors. Of the 71 studies that investigated the relationship between innovation and organisational performance, 43 studies used the subjective measures of organisational performance. The findings provide overwhelming evidence (41 studies) indicating innovation is positively and significantly related to organisational performance. In contrast, two studies found mixed results.

 Objective measures

Table 5 depicts authors and hypothesis results of studies that used objective measures of organisational performance on the relationship between innovation and organisational performance. Objective measures, the absolute values of a firm’s actual performance, are generally sourced from an independent body such as a stock exchange.

Objective measures of organisational performance.

Article reference number Findings Number of articles
7, 9, 26, 27, 30, 36, 47, 52, 60, 61, 63, 65, 71 Innovation is significantly and positively related to organisational performance 13
6, 11, 15, 20, 21, 22, 25, 32, 43, 45, 51, 69
 The results were mixed (positive, negative or no relationship)
 12
Total - 25

Table 5 shows that when objective measures of organisational performance are used, the higher number of studies reveals mixed results. This suggests that the type of instrument used might also influence the results in studies that investigate the relationship between innovation and organisational performance. For example, the study conducted by Likar et al. (2014) showed innovation is significantly and positively related to performance when measured using ROE, whereas the same study revealed no relationship when ROS and ROA were used. Table 5 shows that, of the 25 studies that investigated the relationship between innovation and organisational performance, 13 found a positive relationship and 12 found mixed results.

 Managerial implication

The primary purpose of this study is to report on the instruments used to measure organisational performance and investigate whether the type of instrument used influences the results of those studies that investigated the relationship between innovation and organisational performance. Using the systematic review methodology, this study finds that combining both financial and non-financial measures is touted as the most effective measure of organisational performance. In total, 37 studies use both financial and non-financial measures, which constitute 50.7% of the overall sample of articles. However, a substantial number of authors still prefer to use financial measures as the sole measure of organisational performance, with 29 studies focusing exclusively on the financial measures, which constitute 40.8% of the overall sample. The sole use of financial indicators as a proxy for organisational performance may be informed by the popular notion that ultimately the goal of the organisation is to maximise profit in the short term and to maximise shareholder value in the long-term.

In addition, the study provides evidence that profitability, sales growth, ROA, ROS, ROI, ROE and turnover are the most preferred accounting measures for financial performance. Similarly, the study further reveals that Tobin’s Q is the most favoured market-related measure used by innovation scholars to measure financial aspects of organisational performance.

On the contrary, market share, customer satisfaction and productivity measures are reported as the most preferred non-financial measures of organisational performance. This study provides clear evidence that the use of non-financial measures as a sole measure is not a common trend, with only 5 (7%) of 71 studies opting to exclusively use non-financial measures to measure organisational performance.

The use of any specific measure of organisational performance is not implicitly wrong, but Gentry and Shen (2010) urge that researchers should always be cautious in their approach and clearly define which aspects of organisational performance they intend to study, and then develop and test hypotheses around that defined area.

When findings were studied, this study showed that organisations that practise innovative behaviour generally exhibit superior organisational performance relative to organisations with less innovative behaviour. The study showed that 54 studies, which constitute 76% of the overall sample, supported the hypothesis that innovation leads to superior organisational performance. In addition, the findings also showed that 60.6% of the overall sample used the subjective measures of organisational performance, relative to only 35.2% which used objective measures of organisational performance. When objective measures were used, the findings reveal that a higher number of studies (48%) showed mixed results, no relationship or negative relationship, relative to 0.05% which showed mixed results, no relationship or negative relationship when subjective measures are used. This finding suggests that the selection of the instruments to measure organisational performance does influence the outcome of the results, as shown in studies that investigate the relationship between innovation and organisational performance.

Thus, the implications of the research for both researchers and practitioners can be divided into two main areas:

Firstly, the study revealed the measurement instrument favoured by researchers. But of significance is that the reasons for selecting the instruments are generally based on the popularity of the instrument in this domain, and not necessarily based on the objective of the study. This observation suggests that researchers should be more cautious when selecting the instrument to measure organisational performance because the instrument has a direct impact on the outcome of the study.

Secondly, the finding shows that the method in which the instruments is used can affect the outcome of the research. In other words, when subjective measures of organisational performance are used, the outcome of the results is easily predictable. In contrast, when objective measures are used, the extent of variability of the results increases. In other words, the outcome of the results is not easily predictable when objective measures are used. As such, researchers and practitioners should be more alert to the possible false inferences that may be the result of using a specific method to measure organisational performance, particularly the use of subjective measures.

 Conclusion

In conclusion, this finding supports the argument put forward by Gentry and Shen (2010), which states that a thorough literature study should be central to decision-making when selecting measures of organisational performance, as the types of measures seemingly influence the outcome of the enquiry.

Recommendation for future research

This study should serve as stimulus for future studies to explore all the possible factors that influence findings related to the relationship between innovation and organisational performance. Future studies that investigate the relationship between innovation and organisational performance should try to isolate the role of innovation on organisations, and eliminate the cloud created by factors such as measurement tools, by selecting the instrument(s) based on the objective of the study.

 Acknowledgements Competing interests

The authors declare that they have no financial or personal relationships which may have inappropriately influenced them in writing this article.

 Authors’ contributions

T.S. was responsible for all aspects of the research, including matters such as identifying the research problem, formulating the research objective, the research design, execution of the research and drafting the article. R.S. played a mentoring role and assisted with the critical comments and provided guidance in drafting the article.

 References Aas, T.H. & Pedersen, P.E., 2011, ‘The impact of service innovation on firm-level financial performance’, Service Industries Journal 31(13), 2071–2090. http://dx.doi.org/10.1080/02642069.2010.503883 Adner, R. & Kapoor, R., 2010, ‘Value creation in innovation ecosystems: How the structure of technological interdependence affects firm performance in new technology generations’, Strategic Management Journal 31(3), 306–333. http://dx.doi.org/10.1002/smj.821 Alam, I., 2003, ‘Innovation strategy, process and performance in the commercial banking industry’, Journal of Marketing Management 19(9/10), 793–999. Alexander, D. & Nobes, C., 2010, Financial accounting: An international introduction, 4th edn., Pearson Education Limited, Harlow. Alpay, G., Bodur, M., Yilmaz, C. & Büyükbalci, P., 2012, ‘How does innovativeness yield superior firm performance? The role of marketing effectiveness’, Innovation: Management, Policy & Practice 14(1), 107–128. http://dx.doi.org/10.5172/impp.2012.14.1.107 Artz, K.W., Norman, P.M., Hatfield, D.E. & Cardinal, L.B., 2010, ‘A longitudinal study of the impact of R&D, patents, and product innovation on firm performance’, Journal of Product Innovation Management 27(5), 725–740. http://dx.doi.org/10.1111/j.1540-5885.2010.00747.x Aspara, J., Hietanen, J. & Tikkanen, H., 2010, ‘Business model innovation vs. replication: Financial performance implications of strategic emphases’, Journal of Strategic Marketing 18(1), 39–56. http://dx.doi.org/10.1080/09652540903511290 Basterretxea, I. & Martinez, R., 2012, ‘Impact of management and innovation capabilities on performance: Are cooperatives different?’, Annals of Public and Cooperative Economics 83(3), 357–381. http://dx.doi.org/10.1111/j.1467-8292.2012.00467.x Battor, M. & Battor, M., 2010, ‘The impact of customer relationship management capability on innovation and performance advantages: Testing a mediated model’, Journal of Marketing Management 26(9/10), 842–857. http://dx.doi.org/10.1080/02672570903498843 Berger, A.N. & Bonaccorsi di Patti, E., 2003, ‘Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry’, Journal of Banking and Finance 30(4), 1065–1102. http://dx.doi.org/10.1016/j.jbankfin.2005.05.015 Bettis, R.A., 1983, ‘Modern financial theory, corporate strategy, and public policy: Three conundrums’, Academy of Management Review 8(3), 406–415. http://dx.doi.org/10.2307/257829 Bigliardi, B., 2013, ‘The effect of innovation on financial performance: A research study involving SMEs innovation’, Management, Policy & Practice 15(2), 245–256. http://dx.doi.org/10.5172/impp.2013.15.2.245 Bodlaj, M., 2010, ‘The impact of a responsive and proactive market orientation on innovation and business performance’, Economic and Business Review 12(4), 241–261. Brockman, B.K., Jones, M.A. & Becherer, R.C., 2012, ‘Customer orientation and performance in small firms: Examining the moderating influence of risk-taking, innovativeness, and opportunity focus’, Journal of Small Business Management 50(3), 429–446. http://dx.doi.org/10.1111/j.1540-627X.2012.00361.x Cainelli, G., Mazzanti, M. & Zoboli, R., 2011, ‘Environmentally oriented innovative strategies and firm performance in services. Micro-evidence from Italy’, International Review of Applied Economics 25(1), 61–85. http://dx.doi.org/10.1080/02692170903426146 Carvalho, A.O., Ribeiro, I., Cirani, C.B.S. & Cintra, R.F., 2016, ‘Organisational resilience: A comparative study between innovative and non-innovative companies based on the financial performance analysis’, International Review of Applied Economics 25(1), 61–85. Camarero, C., Garrido, M.J. & Vicente, E., 2011, ‘How cultural organizations’ size and funding influence innovation and performance: The case of museums’, Journal of Cultural Economics 35(4), 247–266. http://dx.doi.org/10.1007/s10824-011-9144-4 Cambra-Fierro, J.J., Hart, S., Fuster Mur, A. & Polo Redondo, Y., 2011, ‘Looking for performance: How innovation and strategy may affect market orientation models’, Innovation: Management, Policy & Practice 13(2), 154–172. http://dx.doi.org/10.5172/impp.2011.13.2.154 Campbell, K. & Mínguez-Vera, A., 2008, ‘Gender diversity in the boardroom and firm financial performance’, Journal of Business Ethics 83(3), 435–451. http://dx.doi.org/10.1007/s10551-007-9630-y Cho, H. & Pucik, V., 2005, ‘Relationship between innovativeness, quality, growth, profitability, and market value’, Strategic Management Journal 26(6), 555–575. http://dx.doi.org/10.1002/smj.461 Clifton, N., Keast, R., Pickernell, D. & Senior, M., 2010, ‘Network structure, knowledge governance, and firm performance: Evidence from innovation networks and SMEs in the UK’, Growth and Change 41(3), 337–373. http://dx.doi.org/10.1111/j.1468-2257.2010.00529.x Cortez, M.A.A. & Cudia, C.P., 2010, ‘The impact of environmental innovations on financial performance: The case of Japanese automotive and electronics companies’, Journal of International Business Research 9(1), 33–46. Cortez, M.A.A. & Cudia, C.P., 2011, ‘The virtuous cycles between environmental innovations and financial performance: Case study of Japanese automotive and electronics companies’, Academy of Accounting & Financial Studies Journal 15(2), 31–44. Cortez, M.A.A., Ikram, M.I.N., Nyuyen, T.T. & Pravini, W.P., 2015, ‘Innovation and financial performance of electronic companies: A cross-country comparison’, Journal of International Business Research 14(1), 166–179. Dawes, J., 1999, ‘The relationship between subjective and objective company performance measures in market orientation research: Further empirical evidence’, Marketing Bulletin 10(3), 65–75. Davidson, G.M., 2003, The relationship between organizational culture and financial performance in South African Investment Bank, Unpublished Master’s dissertation, University of South Africa, Pretoria. Durán-Vázquez, R., Lorenzo-Valdés, A. & Moreno-Quezada, G.E., 2012, ‘Innovation and CSR impact on financial performance of selected companies in Mexico’, Journal of Entrepreneurship, Management and Innovation 8(3), 5–20. Eggink, M.E., 2011, The role of innovation in economic development, Unpublished Doctoral thesis, University of South Africa, Pretoria. Eris, E.D. & Ozmen, O.N.T., 2012, ‘The effect of market orientation, learning orientation and innovativeness on firm performance: A research from Turkish logistics sector’, International Journal of Economic Sciences and Applied Research 5(1), 77–108. Faems, D., De Visser, M., Andries, P. & Van Looy, B., 2010, ‘Technology alliance portfolios and financial performance: Value-enhancing and cost-increasing effects of open innovation’, Journal of Product Innovation Management 27(6), 785–796. http://dx.doi.org/10.1111/j.1540-5885.2010.00752.x Fang, E., Palmatier, R.W. & Grewal, R., 2011, ‘Effects of customer and innovation asset configuration strategies on firm performance’, Journal of Marketing Research 48(3), 587–602. http://dx.doi.org/10.1509/jmkr.48.3.587 Fernandez, P., 2001, EVA, economic profit and cash value added do not measure shareholder value creation, working paper, IESE Business School, University of Navarra, Spain. Firer, C., Ross, S.A., Westerfield, R.W. & Jordan, B.D., 2008, Fundamentals of corporate finance, 4th edn., McGraw-Hill Education, London. Forsman, H. & Temel, S., 2011, ‘Innovation and business performance in small enterprises: An enterprise-level analysis’, International Journal of Innovation Management 15(3), 641–665. http://dx.doi.org/10.1142/S1363919611003258 Frigo, M.L., 2003, ‘Guidelines for strategic financial analysis’, Strategic Finance 85(5), 1–9. García-Zamora, E., González-Benito, O. & Muñoz-Gallego, P.A., 2013, ‘Organizational and environmental factors as moderators of the relationship between multidimensional innovation and performance’, Innovation: Management, Policy & Practice 15(2), 224–244. http://dx.doi.org/10.5172/impp.2013.15.2.224 Garg, A.K., Joubert, R.J.O. & Pellissier, R., 2004, ‘Measuring business performance: A case study’, Southern African Business Review 8(1), 7–21. Garrison, R.H., Noreen, E.R. & Brewer, P.C., 2008, Managerial accounting, 4th edn., McGrew-Hill/Irwin, New York. Gentry, R.J.P. & Shen, W.P., 2010, ‘The relationship between accounting and market measures of firm financial performance: How strong is it?’, Journal of Managerial Issues 22(4), 514–530, 434–435. Gibb, J. & Haar, J.M., 2010, ‘Risk taking, innovativeness and competitive rivalry: A three-way interaction towards firm performance’, International Journal of Innovation Management 14(5), 871–891. http://dx.doi.org/10.1142/S136391961000291X Gökmen, A. & Hamşioğlu, A.B., 2011, ‘The effect of knowledge management, technological capability and innovation on the enterprise performance: A comprehensive empirical study of the Turkish textile sector’, Journal of Information & Knowledge Management 10(1), 1–10. http://dx.doi.org/10.1142/S021964921100278X Grawe, S.J., Daugherty, P.J. & Roath, A.S., 2011, ‘Knowledge synthesis and innovative logistics processes: Enhancing operational flexibility and performance’, Journal of Business Logistics 32(1), 69–80. http://dx.doi.org/10.1111/j.2158-1592.2011.01006.x Greenley, G.E., 1995, ‘Market orientation and company performance: Empirical evidence from UK companies’, British Journal of Management 6(1), 1–13. http://dx.doi.org/10.1111/j.1467-8551.1995.tb00082.x Gronum, S., Verreynne, M.L. & Kastelle, T., 2012, ‘The role of networks in small and medium-sized enterprise innovation and firm performance’, Journal of Small Business Management 50(2), 257–282. http://dx.doi.org/10.1111/j.1540-627X.2012.00353.x Guiral, A., 2012, ‘Corporate social performance, innovation intensity, and financial performance: Evidence from lending decisions’, Behavioral Research in Accounting 24(2), 65–85. http://dx.doi.org/10.2308/bria-50096 Hemert, P., Nijkamp, P. & Masurel, E., 2013, ‘From innovation to commercialization through networks and agglomerations: Analysis of sources of innovation, innovation capabilities and performance of Dutch SMEs’, Annals of Regional Science 50(2), 425–452. http://dx.doi.org/10.1007/s00168-012-0509-1 Hervas-Oliver, J., Sempere-Ripoll, F. & Boronat-Moll, C., 2014, ‘Process innovation strategy in SMEs, organisational innovation and performance: A misleading debate?’, Small Business Economics 43, 873–886. http://dx.doi.org/10.1007/s11187-014-9567-3 Hoopes, D.G., Hadsen, T.L. & Walker, G., 2003, ‘Guest editors’ introduction to the special issue: Why is there a resource-based view? Toward a theory of competitive heterogeneity’, Strategic Management Journal 24(10), 889–902. http://dx.doi.org/10.1002/smj.356 Hoskisson, R.E., Hitt, M.A., Wan, W.P. & Yiu, D., 1999, ‘Theory and research in strategic management: Swings of a pendulum’, Journal of Management 25(3), 417–456. http://dx.doi.org/10.1177/014920639902500307 Huang, H., Lai, M., Kao, M. & Chen, Y., 2012, ‘Target costing, business model innovation, and firm performance: An empirical analysis of Chinese firms’, Canadian Journal of Administrative Sciences 29(4), 322–335. http://dx.doi.org/10.1002/cjas.1229 Huang, L., Chen, S.K. & Han, S.B., 2011, ‘The effect of business reorganization and technical innovation on firm performance’, Journal of Business and Economic Studies 17(1), 29–36. Huffman, F.A. & Skaggs, B.C., 2010, ‘The effects of customer-firm interaction on innovation and performance in service firms’, Journal of Business Strategies 27(2), 151–175. Hult, G.T.M., Ketchen, D.J., Griffith, D.A., Chabowski, B.R., Hamman, M.K., Dykes, B.J. et al., 2008, ‘An assessment of the measurement of performance in international business research’, Journal of International Business Studies 39(6), 1064–1080. http://dx.doi.org/10.1057/palgrave.jibs.8400398 Iona, A., Leonida, L. & Navarra, P., 2013, ‘Business group affiliation, innovation, internationalization, and performance: A semiparametric analysis’, Global Strategy Journal 3(3), 244–261. http://dx.doi.org/10.1111/j.2042-5805.2013.01060.x Ito, K. & Lechevalier, S., 2010, ‘Why some firms persistently out-perform others: Investigating the interactions between innovation and exporting strategies’, Industrial and Corporate Change 19(6), 1997–2039. http://dx.doi.org/10.1093/icc/dtq056 Karanja, E., 2011, The mediating effect of innovation on the relationship between information technology investment and firm performance: An empirical study, Unpublished Doctoral thesis, Morgan State University, Baltimore, MD. Kreiser, P.M. & Davis, J., 2010, ‘Entrepreneurial orientation and firm performance: The unique impact of innovativeness, proactiveness, and risk-taking’, Journal of Small Business and Entrepreneurship 23(1), 39–51. http://dx.doi.org/10.1080/08276331.2010.10593472 Lau, A.K.W., Tang, E. & Yam, R.C.M., 2010, ‘Effects of supplier and customer integration on product innovation and performance: Empirical evidence in Hong Kong manufacturers’, Journal of Product Innovation Management 27(5), 761–777. http://dx.doi.org/10.1111/j.1540-5885.2010.00749.x Likar, B., Kopa, J. & Fatur, P., 2014, ‘Innovation investment and economic performance in transition economies: Evidence from Slovenia’, Innovation: Management, Policy & Practice 16(1), 53–66. http://dx.doi.org/10.5172/impp.2014.16.1.53 Liu, X. & Wu, X., 2011, ‘Technology embeddedness, innovation differentiation strategies and firm performance: Evidence from Chinese manufacturing firms’, Innovation: Management, Policy & Practice 13(1), 20–35. http://dx.doi.org/10.5172/impp.2011.13.1.20 Lubatkin, M. & Shrieves, R.E., 1986, ‘Towards reconciliation of market performance measures to strategic management research’, Academy of Management Review 11(3), 497–512. Mafini, C., 2015, ‘Predicting organisational performance through innovation, quality and inter-organisational systems: A public sector perspective’, Journal of Applied Business Research 31(3), 939–952. http://dx.doi.org/10.19030/jabr.v31i3.9227 Maltz, A., Shenhar, A. & Reilly, R., 2003, ‘Beyond the balanced scorecard: Refining the search for organizational success measures’, Long Range Planning 36(2), 187–204. http://dx.doi.org/10.1016/S0024-6301(02)00165-6 Marx, J., 2004, Finance for non-financial managers, 2nd edn., ABC Press, Cape Town. Mat Rabi, N., Zulkafli, A.H. & Che Haat, M.H., 2010, ‘Corporate governance, innovation investment and firm performance: Evidence from Malaysian public listed companies’, Economia: Seria Management 13(2), 225–239. Mazzola, E., Bruccoleri, M. & Perrone, P., 2012, ‘The effect of inbound, outbound and coupled innovation on performance’, International Journal of Innovation Management 16(6), 27. http://dx.doi.org/10.1142/S1363919612400087 McNally, R.C., Cavusgil, E. & Calantone, R.J., 2010, ‘Product innovativeness dimensions and their relationships with product advantage, product financial performance, and project protocol’, Journal of Product Innovation Management 27(7), 991–1006. http://dx.doi.org/10.1111/j.1540-5885.2010.00766.x Modi, P., 2012, ‘Market orientation in nonprofit organizations: Innovativeness, resource scarcity, and performance’, Journal of Strategic Marketing 20(1), 55–67. http://dx.doi.org/10.1080/0965254X.2011.628405 Mollick, E., 2012, ‘People and process, suits and innovators: The role of individuals in firm performance’, Strategic Management Journal 33(9), 1001–1015. http://dx.doi.org/10.1002/smj.1958 Morris, L., 2008, Innovation metrics: An innovation labs, viewed 26 February 2015, from http://www.innovationlabs.com/Measuring_Innovation.pdf Nawaz, M.S., Hassan, M. & Shaukat, S., 2014, ‘Impact of knowledge management practices on firm performance: Testing the mediation role of innovation in the manufacturing sector of Pakistan’, Pakistan Journal of Commerce & Social Sciences 8(1), 99–111. Ndregjoni, Z. & Elmazi, L., 2012, ‘The effects of relationship between information technology and firm innovation on firm performance: The case of Albania’, International Journal of Management Cases 14(1), 235–246. http://dx.doi.org/10.5848/APBJ.2012.00023 Nightingale, A., 2009, ‘A guide to systematic literature review’, Surgery 27(9), 381–384. http://dx.doi.org/10.1016/j.mpsur.2009.07.005 Noruzy, A., Dalfard, V., Azhdari, B., Nazari-Shirkouhi, S. & Rezazadeh, A., 2013, ‘Relations between transformational leadership, organizational learning, knowledge management, organizational innovation, and organizational performance: An empirical investigation of manufacturing firms’, International Journal of Advanced Manufacturing Technology 64(5–8), 1073–1085. http://dx.doi.org/10.1007/s00170-012-4038-y Nybakk, E., 2012, ‘Learning orientation, innovativeness and financial performance in traditional manufacturing firms: A higher-order structural equation model’, International Journal of Innovation Management 16(5), 28. http://dx.doi.org/10.1142/S1363919612003873 Nybakk, E. & Jenssen, J.I., 2012, ‘Innovation strategy, working climate, and financial performance in traditional manufacturing firms: An empirical analysis’, International Journal of Innovation Management 16(2), 1–26. http://dx.doi.org/10.1142/S1363919611003374 O’Connor, G.C., Leifer, R., Paulson, A.S. & Peters, L.S., 2008, Grabbing lightning: Building a capability for breakthrough innovation, Jossey-Bass, San Francisco, CA. OECD/Eurostat, 2005, Islo manual: Guidelines for collecting and interpreting innovation data, 2nd edn., OECD Publishing, Paris. Oke, A., Walumbwa, F.O. & Myers, A., 2012, ‘Innovation strategy, human resource policy, and firms’ revenue growth: The roles of environmental uncertainty and innovation performance’, Decision Sciences 43(2), 273–302. http://dx.doi.org/10.1111/j.1540-5915.2011.00350.x Padgett, R.C. & Moura-Leite, R.C., 2012, ‘Innovation with high social benefits and corporate financial performance’, Journal of Technology Management & Innovation 7(4), 59–69. http://dx.doi.org/10.4067/S0718-27242012000400005 Postružnik, N. & Moretti, M., 2012, ‘Innovation and communication as dimensions of the marketing culture: Their influence on financial performance in Slovenia’s insurance and construction industries’, Our Economy 58(1/2), 35–47. Rajan, M.V. & Reichelstein, S., 2009, ‘Objective versus subjective indicators of managerial performance’, The Accounting Review 84(1), 209–327. http://dx.doi.org/10.2308/accr.2009.84.1.209 Ritala, P., 2012, ‘Coopetition strategy – When is it successful? Empirical evidence on innovation and market performance’, British Journal of Management 23(3), 307–324. Robeson, D. & O’Connor, G.C., 2013, ‘Boards of directors, innovation, and performance: An exploration at multiple levels’, Journal of Product Innovation Management 30(4), 608–625. http://dx.doi.org/10.1111/jpim.12018 Robson, L.S., Clarke, J.A., Cullen, K., Bielecky, A., Severin, C., Bigelow, P.L. et al., 2007, ‘The effectiveness of occupational health and safety management system interventions: A systematic review’, Safety Science 45, 329–353. http://dx.doi.org/10.1016/j.ssci.2006.07.003 Rubera, G. & Kirca, A.H., 2012, ‘Firm innovativeness and its performance outcomes: A meta-analytic review and theoretical integration’, Journal of Marketing 76(3), 130–147. http://dx.doi.org/10.1509/jm.10.0494. Ruiz-Arroyo, M., Fuentes-Fuentes, M.D.M., Bojica, A.M. & Rodriguez-Ariza, L., 2012, ‘Innovativeness and performance in women-owned small firms: The role of knowledge acquisition’, Journal of Small Business and Entrepreneurship 25(3), 307–326. http://dx.doi.org/10.1080/08276331.2012.10593575 Saunders, P., 2012, Research methods for business students, 6th edn., Pearson Education Limited, Harlow. Selby, J., 2010, A quantitative study describing the impact of innovation-related investment and management performance on corporate financial returns, Unpublished Doctoral thesis, Walden University, Minneapolis, MN. Shin, Y., Sung, S.Y., Choi, J.N. & Kim, M.S., 2015, ‘Top management ethical leadership and firm performance: Mediating role of ethical and procedural justice climate’, Journal of Business Ethics 129, 43–57. http://dx.doi.org/10.1007/s10551-014-2144-5 Shook, C.L., Ketchen, D.J., Jr, Hult, G.T.M. & Kacmar, K.M., 2004, ‘An assessment of the use of structural equation modeling in strategic management research’, Strategic Management Journal 25(4), 397–404. http://dx.doi.org/10.1002/smj.385 Simachev, Y., Kuzyk, M. & Feygina, V., 2015, ‘Public support for innovation in Russia firms: Looking for improvements in corporate performance quality’, International Atlantic Economic Conference 21, 13–31. Sivakumar, K., Roy, S., Zhu, J. & Hanvanich, S., 2011, ‘Global innovation generation and financial performance in business-to-business relationships: The case of cross-border alliances in the pharmaceutical industry’, Journal of the Academy of Marketing Science 39(5), 757–776. http://dx.doi.org/10.1007/s11747-010-0229-y Slavković, M. & Babić, V., 2013, ‘Knowledge management, innovativeness, and organizational performance: Evidence from Serbia’, Economic Annals 58(199), 85–107. http://dx.doi.org/10.2298/EKA1399085S Smith, M.J., 2007, ‘Accounting conservatism and real options’, Journal of Accounting, Auditing & Finance 22(3), 449–467. Song, M., Im, S., Bij, H. & Song, L.Z., 2011, ‘Does strategic planning enhance or impede innovation and firm performance?’, Journal of Product Innovation Management 28(4), 503–520. http://dx.doi.org/10.1111/j.1540-5885.2011.00822.x Stegerean, R. & Gavrea, C., 2010, ‘Innovation and development: Criteria for organizational performance’, Managerial Challenges of the Contemporary Society (1), 202–205. Stock, R.M., Six, B. & Zacharias, N.A., 2013, ‘Linking multiple layers of innovation-oriented corporate culture, product program innovativeness, and business performance: A contingency approach’, Journal of the Academy of Marketing Science 41(3), 283–299. http://dx.doi.org/10.1007/s11747-012-0306-5 Stock, R.M. & Zacharias, N.A., 2011, ‘Patterns and performance outcomes of innovation orientation’, Journal of the Academy of Marketing Science 39(6), 870–888. http://dx.doi.org/10.1007/s11747-010-0225-2 Subrahmanya, M.H.B., 2011, ‘Technological innovations and firm performance of manufacturing SMEs: Determinants and outcomes’, ASCI Journal of Management 41(1), 109–122. Talke, K., Salomo, S. & Kock, A., 2011, ‘Top management team diversity and strategic innovation orientation: The relationship and consequences for innovativeness and performance’, Journal of Product Innovation Management 28(6), 819–832. http://dx.doi.org/10.1111/j.1540-5885.2011.00851.x Terziovski, M., 2010, ‘Innovation practice and its performance implications in small and medium enterprises (SMEs) in the manufacturing sector: A resource-based view’, Strategic Management Journal 31(8), 892–902. http://dx.doi.org/10.1002/smj.841 Tobin, J., 1969, ‘A general equilibrium approach to monetary theory’, Journal of Money Credit and Banking 1(1), 15–29. http://dx.doi.org/10.2307/1991374 Tranfield, D., Denyer, D. & Smart, P., 2003, ‘Towards a methodology for developing evidence-informed management knowledge by means of systematic review’, British Journal of Managemen 14, 207–222. http://dx.doi.org/10.1111/1467-8551.00375 Tsao, S.M. & Lien, W.H., 2013, ‘Family management and internationalization: The impact on firm performance and innovation’, Management International Review 53(2), 189–213. http://dx.doi.org/10.1007/s11575-011-0125-9 Tsai, M. & Tsai, C., 2010, ‘Innovation capability and performance in Taiwanese science parks: Exploring the moderating effects of industrial clusters fabric’, International Journal of Organizational Innovation 2(4), 80–103. Ul Hassan, M., Shaukat, S., Nawaz, M.S. & Naz, S., 2013, ‘Effects of innovation types on firm performance: An empirical study on Pakistan’s manufacturing sector’, Pakistan Journal of Commerce and Social Sciences 7(2), 243–262. Useem, M., 1993, Executive defence: Shareholder power and corporate reorganization, Harvard University Press, Cambridge, MA. Walker, R.M., Damanpour, F. & Devece, C.A., 2011, ‘Management innovation and organizational performance: The mediating effect of performance management’, Journal of Public Administration Research and Theory 21(2), 367–386. http://dx.doi.org/10.1093/jopart/muq043 Wheatley, K.K. & Doty, D.H., 2010, ‘Executive compensation as a moderator of the innovation-performance relationship’, Journal of Business and Management 16(1), 89–102. Wu, S. & Lin, M.C., 2011, ‘The influence of innovation strategy and organizational innovation on innovation quality and performance’, International Journal of Organizational Innovation 3(4), 45–81. Yang, Y.F., Yang, L. & Chen, Y.S., 2014, ‘Effects of service innovation on financial performance of small audit firms in Taiwan’, International Journal of Business and Finance Research 8(2), 87–99, viewed n.d., from http://www.theibfr.com/ijbfrsample.htm Yen, Y., 2013, ‘The impact of bank’s human capital on organizational performance: How innovation influences performance’, Innovation: Management, Policy & Practice 15(1), 112–128. http://dx.doi.org/10.5172/impp.2013.15.1.112 Zhou, Y., Hong, Y. & Liu, J., 2013, ‘Internal commitment or external collaboration? The impact of human resource management systems on firm innovation and performance’, Human Resource Management 52(2), 263–288. http://dx.doi.org/10.1002/hrm.21527 APPENDIX 1

EBSCOhost databases.

Abstracts in Social Gerontology;

Academic Search Premier;

Africa-Wide Information;

AHFS Consumer Medication Information;

America: History & Life;

Art Source;

ATLA Catholic Periodical and Literature Index;

ATLA Religion Database with ATLASerials;

Audiobook Collection (EBSCOhost);

CAB Abstracts;

Child Development & Adolescent Studies;

CINAHL with Full Text;

Communication & Mass Media Complete;

Communication Abstracts;

eBook Collection (EBSCOhost);

EconLit with Full Text;

Education Source;

Environment Complete;

ERIC;

Family & Society Studies Worldwide;

Garden;

Landscape & Horticulture Index;

Gender Studies Database;

Global Health;

GreenFILE;

Health Source – Consumer Edition;

Health Source: Nursing/Academic Edition;

Historical Abstracts with Full Text;

Hospitality & Tourism Complete;

Humanities & Social Sciences Index Retrospective: 1907–1984 (H.W. Wilson);

Humanities Source;

Index to Legal Periodicals Retrospective: 1908–1981 (H.W. Wilson);

Inspec;

Inspec Archive – Science Abstracts 1898–1968;

Legal Source;

LGBT Life with Full Text;

Library & Information Science Source;

Library;

Information Science & Technology Abstracts;

MasterFILE Premier;

MEDLINE;

Mental Measurements Yearbook with Tests in Print;

New Testament Abstracts;

Newspaper Source;

Old Testament Abstracts;

Political Science Complete;

PsycARTICLES;

PsycBOOKS;

PsycCRITIQUES;

PsycEXTRA;

PsycINFO;

PsycTESTS;

Race Relations Abstracts;

Regional Business News;

RILM Abstracts of Music Literature;

Social Work Abstracts;

SocINDEX with Full Text;

Teacher Reference Center;

Urban Studies Abstracts;

Waters & Oceans Worldwide;

Wildlife & Ecology Studies Worldwide.

Chronological list of articles selected for the research.

Article reference number Year Author(s) Title
1 2010 Adner & Kapoor Value creation in innovation ecosystems: how the structure of technological interdependence affects firm performance in new technology generations
2 2010 Aspara, Hietanen & Tikkanen Business model innovation versus replication: financial performance implications of strategic emphases
3 2010 Battor & Battor The impact of customer relationship management capability on innovation and performance advantages: testing a mediated model
4 2010 Bodlaj The impact of a responsive and proactive market orientation on innovation and business performance
5 2010 Clifton, Keast, Pickernell & Senior Network structure, knowledge governance and firm performance: evidence from innovation networks and small and medium enterprises (smes) in the United Kingdom
6 2010 Cortez & Cudia The impact of environmental innovations on financial performance: the case of Japanese automotive and electronics companies
7 2010 Faems, Visser, Andries & Looy Technology alliance portfolios and financial performance: value-enhancing and cost-increasing effects of open innovation
8 2010 Gibb & Haar Risk-taking, innovativeness and competitive rivalry: a three-way interaction towards firm performance
9 2010 Huffman & Skaggs The effects of customer–firm interaction on innovation and performance in service firms
10 2010 Ito & Lechevalier Why some firms persistently out-perform others: investigating the interactions between innovation and exporting strategies
11 2010 Artz, Norman, Hatfield & Cardinal A longitudinal study of the impact of R & D, patents and product innovation on firm performance
12 2010 Kreiser & Davis Entrepreneurial orientation and firm performance: the unique impact of innovativeness, proactiveness and risk-taking
13 2010 Lau, Tang & Yam Effects of supplier and customer integration on product innovation and performance: empirical evidence in Hong Kong manufacturers
14 2010 McNally, Cavusgil & Calantone Product innovativeness dimensions and their relationships with product advantage, product financial performance and project protocol
15 2010 Mat Rabi, Zulkafli &Che-Haat Corporate governance, innovation investment and firm performance: evidence from Malaysian public-listed companies
16 2010 Stegerean & Gavrea Innovation and development – criteria for organisational performance
17 2010 Terziovski Innovation practice and its performance implications in smes in the manufacturing sector: a resource-based view
18 2010 Tsai & Tsai Innovation capability and performance in Taiwanese science parks: exploring the moderating effects of industrial clusters fabric
19 2010 Walker, Damanpour & Devece Management innovation and organisational performance: the mediating effect of performance management
20 2010 Wheatley & Doty Executive compensation as a moderator of the innovation–performance relationship
21 2011 Aas & Pedersen The impact of service innovation on firm-level financial performance
22 2011 Cainelli, Mazzanti & Zoboli Environment-oriented innovative strategies and firm performance in services
23 2011 Camarero, Garrido & Vicente How cultural organisations’ size and funding influence innovation and performance: the case of museums
24 2011 Cambra-Fierro, Hart, Mur & Redondo Looking for performance: how innovation and strategy may affect market orientation models
25 2011 Cortez & Cudia The impact of environmental innovations on financial performance: the case of Japanese automotive and electronics companies
26 2011 Fang, Palmatier & Grewal Effects of customer and innovation asset configuration strategies on firm performance
27 2011 Forsman & Temel Innovation and business performance in small enterprises: an enterprise-level analysis
28 2011 Gökmen & Hamşioğlu The effect of knowledge management, technological capability and innovation on the enterprise performance: a comprehensive empirical study of the Turkish textile sector
29 2011 Grawe, Daugherty & Roath Knowledge synthesis and innovative logistics processes: enhancing operational flexibility and performance
30 2011 Huang, Chen & Han The effect of business reorganisation and technical innovation on firm performance
31 2011 Liu & Wu Technology embeddedness, innovation differentiation strategies and firm performance: evidence from Chinese manufacturing firms
32 2011 Sivakumar, Roy, Zhu & Hanvanich Global innovation generation and financial performance in business-to-business relationships: the case of cross-border alliances in the pharmaceutical industry
33 2011 Song, Im, Van Der Bij & Song Does strategic planning enhance or impede innovation and firm performance?
34 2011 Stock & Zacharias Patterns and performance outcomes of innovation orientation
35 2011 Subrahmanya Technological innovations and firm performance of manufacturing SMEs: determinants and outcomes
36 2011 Talke, Salomo & Kock Top management team diversity and strategic innovation orientation: the relationship and consequences for innovativeness and performance
37 2011 Wu & Lin The influence of innovation strategy and organisational innovation on innovation quality and performance
38 2012 Alpay, Bodur, Yilmaz & Büyükbalci How does innovativeness yield superior firm performance? the role of marketing effectiveness
39 2012 Basterretxea & Mart´Inez Impact of management and innovation capabilities on performance: are cooperatives different?
40 2012 Brockman, Jones & Becherer Customer orientation and performance in small firms: examining the moderating influence of risk-taking, innovativeness and opportunity focus
41 2012 Eris & Ozmen The effect of market orientation, learning orientation and innovativeness on firm performance: a research from Turkish logistics sector
42 2012 Gronum, Verreynne & Kastelle The role of networks in small- and medium-sized enterprise innovation and firm performance
43 2012 Guiral Corporate social performance, innovation intensity and financial performance: evidence from lending decisions
44 2012 Huang, Lai, Kao & Chen Target costing, business model innovation and firm performance: an empirical analysis of Chinese firms
45 2012 Mazzola, Bruccoleri & Errone The effect of inbound, outbound and coupled innovation on performance
46 2012 Modi Market orientation in non-profit organisations: innovativeness, resource scarcity and performance
47 2012 Mollick People and process, suits and innovators: the role of individuals in firm performance
48 2012 Nybakk Learning orientation, innovativeness and financial performance in traditional manufacturing firms: a higher-order structural equation model
49 2012 Nybakk & Jenssen Innovation strategy, working climate and financial performance in traditional manufacturing firms: an empirical analysis
50 2012 Oke, Walumbwa & Myers Innovation strategy, human resource policy and firms’ revenue growth: the roles of environmental uncertainty and innovation performance
51 2012 Padgett & Moura-Leite Innovation with high social benefits and corporate financial performance
52 2012 Postružnik & Moretti Innovation and communication as dimensions of the marketing culture: Their influence on financial performance in Slovenia’s insurance and construction industries
53 2012 Ritala Coopetition strategy – When is it successful? Empirical evidence on innovation and market performance
54 2012 Rubera & Kirca Firm innovativeness and its performance outcomes: A meta-analytic review and theoretical integration
55 2012 Ruiz-Arroyo, Mar Fuentes-Fuentes, Bojica & Rodriguez-Ariza Innovativeness and performance in women-owned small firms: The role of knowledge acquisition
56 2013 Stock, Six & Zacharias Linking multiple layers of innovation-oriented corporate culture, product program innovativeness, and business performance: A contingency approach
57 2012 Ndregjoni & Elmazi The effects of relationship between information technology and firm innovation on firm performance: The case of Albani
58 2013 Bigliardi The effect of innovation on financial performance: A research study involving SMEs innovation
59 2013 García-Zamora, González-Benito & Muñoz-Gallego Organisational and environmental factors as moderators of the relationship between multidimensional innovation and performance
60 2013 Hemert, Nijkamp & Masurel From innovation to commercialisation through networks and agglomerations: Analysis of sources of innovation, innovation capabilities and performance of Dutch SMEs
61 2013 Iona, Leonida & Navarra Business group affiliation, innovation, internationalisation and performance: A semi-parametric analysis
62 2013 Noruzy, Dalfard, Azhdari , Nazari-Shirkouhi & Rezazadeh Relations between transformational leadership, organisational learning, knowledge management, organisational innovation and organisational performance: An empirical investigation of manufacturing firms
63 2013 Robeson & O’connor Boards of directors, innovation and performance: An exploration at multiple levels
64 2013 Slavković & Babic Global innovation generation and financial performance in business-to-business relationships: The case of cross-border alliances in the pharmaceutical industry
65 2013 Tsao & Lien Family management and internationalisation: The impact on firm performance and innovation
66 2013 Ul Hassan, Shaukat, Nawaz & Naz Effects of innovation types on firm performance: An empirical study on Pakistan’s manufacturing sector
67 2013 Yen The impact of bank’s human capital on organisational performance: How innovation influences performance
68 2013 Zhou, Hong & Liu Internal commitment or external collaboration? The impact of human resource management systems on firm innovation and performance
69 2014 Likar, Kopac & Fatur Innovation investment and economic performance in transition economies: Evidence from Slovenia
70 2014 Nawaz, Hassan & Shaukat Impact of knowledge management practices on firm performance: Testing the mediation role of innovation in the manufacturing sector of Pakistan
71 2014 Yang, Yang & Chen Effects of service innovation on financial performance of small audit firms in Taiwan

How to cite this article: Sethibe, T. & Steyn, R., 2016, ‘Innovation and organisational performance: A critical review of the instruments used to measure organisational performance’, Southern African Journal of Entrepreneurship and Small Business Management 8(1), a50. http://dx.doi.org/10.4102/sajesbm.v8i1.50