Impact of Innovation Capabilities on Business Sustainability in Small and Medium Enterprises

Abstract

The rationale of this study was to investigate the effect of innovation types on business sustainability in the small and medium enterprises (SMEs). Quantitative approach was used for collecting the data and fulfilling the stated objective. Specifically, the data was collected from 171 employees in SMEs in the Kingdom of Saudi Arabia. The analysis for the collected data was conducted using the partial least square approach (PLS-SEM). The findings showed that product innovation as well as service innovation have significant positive impacts on business sustainability. The results further confirmed that process innovation is vital for achieving business sustainability. Finally, the outcomes verified that marketing innovation has a significant impact on business sustainability. The results confirmed the significance of innovation capabilities in helping entrepreneurs in SMEs to sustain their businesses and improve their competitive strengths.

Keywords

Business sustainability innovation small and medium enterprises

Introduction

The concern towards environmental protection and following sustainable business practices have become vital for businesses in order to satisfy market needs and stakeholder’s expectations (Adams et al., 2006). Governments have increased their concerns towards protecting the environment and fulfilling social needs as well as economic objectives. Accordingly, several firms have largely focused on improving their innovation capabilities in order to build their competitive strengths and improve the sustainability of their businesses. Innovation was described in the literature as the ability of a firm to introduce new or improved products, processes, services and marketing approaches to meet market needs (Lawson & Samson, 2001). Past literature indicated that innovation is vital for strengthening brand power and achieving success in the presence of emerging competition (Betaraya et al., 2018; Yam et al., 2004). According to Hanaysha and Hilman (2015), firms have recently experienced momentous challenges with regards to the sustainability practices of their businesses; and for this reason, innovation represents the main strategy to overcome them. Previous literature also documented that innovation enables firms to ensure their survival and improve their performance on the long term (Ancona & Caldwell, 1987).

The growing complexity of different products and services, fluctuating demands in markets and shorter product life cycles urges entrepreneurs to develop new or improved capabilities and be innovative in order to secure sustainable competitive advantages. The marketing literature highlighted that firms which emphasize on the introduction of innovative products and services and promote them through digital marketing technologies can achieve distinctive advantages. Moreover, successful entrepreneurs tend to exploit business opportunities and improve their capabilities continuously in an attempt to reinforce the competitiveness and performance of their businesses (Afzali & Ahmed, 2016; Sternberg & Arndt, 2001). According to certain scholars (Expósito & Sanchis-Llopis, 2019; Martos-Partal, 2012), product innovation enables firms to respond to changing market needs and develop brand image. Gunday et al. (2011) demonstrated that firms can develop their innovation capabilities in diverse aspects, for instance products, process, structures and services. When a firm proves its ability to innovate and come up with new products or services and please market targets, it tends to obtain greater profitability and nurture its businesses competencies (Damanpour, 1991).

Earlier researches stressed on the significance of various innovation types in driving business sustainability and competitiveness. Fernández et al. (2018) stated that firms which have innovative processes concentrate on activities and products that ensure greater energy efficiency and minimal resource consumption; thus, more appreciated within the environment. Moreover, they found that firms which focus on innovation for minimizing environmental effects tend to innovate for the purpose of increasing energy efficiency. Although innovation capabilities have been regarded as key determinants of business performance and success, only limited empirical researches tested their linkages with business sustainability, particularly in SMEs context. Rauter et al. (2019) indicated that only few studies examined the linkages between innovation capabilities and corporate sustainability. The authors added that the evaluation of innovation performance should address environmental and social aspects of business activities. Additionally, the available empirical research on innovation capabilities has focused mainly on product, process and service innovation. Thus, this article aims to contribute to the literature by incorporating marketing innovation to measure and test its effect on business sustainability in the SMEs context. The next sections present the literature review, methodology, results, and then the discussion and conclusion.

Literature Review

Business Sustainability

Sustainable development exists when a firm implements proactive approaches to meet the objectives and wishes of its stakeholders and at the same time considers the future generation’s needs (Bansal & DesJardine, 2014). The concept of sustainability was defined previously as the ability to fulfil economic and social needs without harming the ecological environment (Drexhage & Murphy, 2010; Mullens, 2018). In other words, business sustainability focuses on achieving three distinct goals; economic, environmental and social performance (Rana, 2019; Sartori et al., 2014). Meng (2015) added that sustainability concept emphasizes on meeting business objectives and human wellbeing. The above sustainability definitions indicate that firms should not merely concentrate on increasing shareholders’ wealth, but they have to consider the influence of their business operations on employees, the society and the environment as well (Freeman, 1984). The advantages of sustainability practices will eventually be translated through improved earnings, higher product quality and brand satisfaction, organizational commitment, improved brand image, the potential for government support, cost saving that results from sustainable logistics and supply chain, and minimal environmental liability and legislation costs.

In todays’ dynamic markets, firms have to regularly analyse and assess their internal as well as external environment in order to learn about the expectations of their target audiences and then be able to utilize available resources efficiently in an attempt to face emerging challenges and obtain sustainable competitive advantages (Kamboj & Rahman, 2017). Currently, firms of different sizes have realized that consumers mainly evaluate them based on their environmental and social performance and for this reason, the viability of their businesses is contingent on the ability to act upon consumers’ expectations (Hussain et al., 2018). Martínez and del Bosque (2014) maintained that firms can enhance their reputations and increase customer loyalty through adopting sustainability practices. Certain studies on corporate sustainability (Ng & Rezaee, 2015; Yusoff et al., 2019) outlined that a firm which employs sustainable business practices in its operations tend to have greater brand value and enjoy lower cost of equity capital. Dyllick and Muff (2016) added that the sustainable practices appear through minimizing environmental emissions, ensuring the well-being of a society and achieving economic objectives of the business. They further stated that sustainable businesses benefit from lower risks and costs of doing business, higher interest among talents to join them, developed brand reputation and better competitive advantages.

Innovation Capabilities

The Kingdom of Saudi Arabia is one the governments which have recognized that aggregate innovation is vital for meeting the strategic wishes and goals of the country (Al. Othman & Sohaib, 2016). The participation of Saudi Arabia in the World Trade Organization (WTO) clearly indicates that it desires to be a key member in the other world economies. Innovation exists when a firm introduces a new product, service or process for the purpose of satisfying the needs of its stakeholders. In the theoretical literature, Teece et al. (1997) developed dynamic capabilities perspective as an extension to the resource-based view, which states that the distinctive resources and capabilities of a firm represent the key assets for building and sustaining its competitive advantage. They further illustrated that dynamic capabilities help organizations to increase their business performance outcomes and strengthen their competitiveness (Teece, 2009). Certain researchers (Brown & Eisenhardt, 1995; Wang & Ahmad, 2007) reported that firms can improve their business growth through product and process innovations. Lin et al. (2010) also regarded marketing innovation as key capability that has positive impact on business growth and survival. However, this article focuses on four distinct forms of innovation (product innovation, process innovation, service innovation and marketing innovation) to test their effects on business sustainability. These innovation capabilities have been used by Lin et al. (2010) in the same model to measure innovation capabilities. Moreover, Atalay et al. (2013) used product innovation, marketing innovation and process innovation together in their study to test their impact on firm performance.

Ideally, every economy should provide a series of favourable institutions taking into account a robust national innovation ecosystem to boost and encourage innovation efforts (Tran et al., 2020). According to the institutional theory, an institutional pressure, for example, coercive legal obligations established by institutional environments may have a strong impact on the creation of formal structures of a company greater than pressures from the market. This refers to the fact that when a company is largely reliant on institutional environments in the presence of high uncertainty, adopting institutionally approved practices, organizational structures, or shared values can safeguard its survival with a better legitimacy (Deephouse, 1996; Peters, 2011; Scott, 1987). That is, based on the assumptions of institutional theory, institutional pressures tend to simplify the social process through which the company moves toward accepting a collective meaning of social reality—a notion whose validity is perceived as independent of the own views or actions of the company while it is taken for granted as describing the manner in which things are and how to accomplish them (Scott, 1987). In this regard, enterprises (particularly small enterprises which can be influenced easily by external pressures of institutions, for instance, government regulations and rules) tend to conform with the induced environmental regulations of government institutions and exercise larger efforts to nurture their innovation and environmental capabilities due to the amplified opportunity for their survival and legitimacy (Joo et al., 2018).

Product innovation has largely been regarded as one of the foremost organizational capabilities and it was conceptualized in the literature as a firm’s ability to offer a new or improved product that can meet the needs of market target (Damanpour, 1991; Hanaysha, 2020). Sharma and Lacey (2004) demonstrated that entrepreneurs in successful SMEs regularly analyse their capabilities and the perceptions of customers towards their products and services, and emphasize on introducing new products from time to time to satisfy market needs and ensure the well-being of a society. They also compare their practices with those of competitors and design the relevant marketing strategies. Al. Othman and Sohaib (2016) examined innovation capabilities and corporate sustainability in the context of Saudi Arabia and suggested that product innovations are the main determinants of sustainable development. Moreover, Sipos (2008) indicated that firms can build and sustain their competitiveness through product innovations that are characterized by advanced technologies and contemporary production methods. To remain competitive, firms have to produce recyclable products and use environmental friendly materials to minimize environmental emissions. Eggert et al. (2014) confirmed that the product innovation capability is necessary for improving business performance and competitive advantages. Rauter et al. (2019) also reported positive linkages between product innovation and corporate sustainability. Therefore, we propose the following hypothesis.

H₁: Product innovation has a positive effect on business sustainability.

Services innovation is another important organizational strategy which has received a noteworthy attention in the previous literature (Ibrahim et al., 2018). Service innovation was conceptualized as an organization’s ability to provided new or upgraded services and adopt new approaches for serving its customers in the best way to maintain them on the long term. Sundbo and Gallouj (2000) stated that service innovation exists when a firm is able to introduce original or novel ideas that can enhance the service delivery process and support customers. Firms can capitalize on various mobile and digital technologies for serving and reaching customers (Sofi & Hakim, 2018). The innovations in service delivery provide customers with superior values and improve their satisfaction (Hanaysha et al., 2021; Kindström et al., 2010). In the prior literature, customer service (Hanaysha, 2016) and service innovation have been regarded as the significant capabilities for enabling firms to increase their performance and enhance brand reputation (Eggert et al., 2014; Hanaysha & Hilman, 2015; Lin, 2013). In context of Saudi Arabia, service innovation has been regarded as a key sources for achieving sustainable development goals. The extant literature also showed that corporate sustainability can be achieved when a firm introduces new services regularly (Cainelli et al., 2004; Rauter et al., 2019). In general, previous literature testified that innovation represents a valuable strategy for enhancing firm performance and achieving business sustainability (Gunday et al., 2011; Rauter et al., 2019; Zott, 2003). These views have been confirmed by Walker (2004); Expósito and Sanchis-Llopis (2019) who reported that innovative corporations tend to generate better market positions and survive in the presence of competition. Hence, following is proposed the second hypothesis:

H₂: Service innovation has a positive effect on business sustainability.

Furthermore, process innovation has been established as an important strategy for achieving business objectives. Process innovation exists when a firm is able to design and apply a new method or technology for performing business activities in an efficient way. Process innovation includes the capability to modify operational methods, equipment tools and business applications. The key objective of process innovations is to minimize the production costs among all units or items, improve the quality of products or services, and ensure greater customer satisfaction (Gunday et al., 2011). Firms focus on process innovation in order to ensure the speed of service delivery and provide customers with added values through implementing efficient systems and applications (Lawson & Samson, 2001). Moreover, the legal framework for overseeing the impact on businesses on the environment and minimizing the emissions of CO2 has forced several firms to improve process innovation (Theißen et al., 2014). Aina et al. (2019) revealed that the Kingdom of Saudi Arabia is currently putting high efforts on sustainable urban development and environmental protection. The country believes in the strength of information technology and innovation for achieving its sustainable development objectives and improving its ranking in this area. Accordingly, process innovations which conform to the government regulations can increase environmental sustainability. These views are in line with Rauter et al. (2019) who outlined that process innovation enables entrepreneurs to achieve better sustainability for their businesses. Consequently, the third hypothesis is presented as follows.

H₃: Process innovation has a positive effect on business sustainability.

Finally, marketing innovation has been established as an important type of innovation that exerts significant impact on business growth. Marketing innovation was described in the literature as a firm’s ability to develop effective marketing programs for creating a product or service that fulfils market needs, company objectives and social well-being. It was also conceptualized by previous studies (Gunday et al., 2011; Karlsson & Tavassoli, 2015) as the ability to design contemporary marketing approaches that foster customer value based on price, marketing communication tools, marketing channels, product development and product packaging. According to Alshuwaikhat and Mohammed (2017), the government of Saudi Arabia has established a vision for 2030 in efforts to place the country on the route to sustainable economic development and growth. The authors added that the country is also aware that the SMEs represent important catalysts for shaping economic development because they contribute significantly to exports, job creation and support innovations. Innovative marketing can be established when a firm expands its current markets, position its products and services in the minds of customers differently, and use effective means for reaching and attracting customers. Kotler (1991) also stated that innovative marketing requires firms to design appealing pricing strategies, improve the features of their products or services, minimize the production costs, use environmentally friendly materials, and maximize customer coverage at lower costs. Mariadoss et al. (2011) confirmed that marketing capabilities which stem from the ability to innovate improve corporate sustainability. On the basis of above literature, the following hypothesis is postulated.

H₄: Marketing innovation has a positive effect on business sustainability.

Overall, the majority of previous studies reveal that innovation capabilities have significant positive impact on business sustainability. When firms focus on green innovation and look for new means to meet the expectations and different claims of several stakeholders, they can maintain their business on the long-term, fulfil social needs and act responsibly towards environmental protection. Therefore, drawing upon the above literature review and underlying theory, the research framework for this article is presented in Figure 1.

Figure 1.

Source: The authors.

Methodology

This section presents the methodology for this research. It begins by describing the data collection method and procedure which highlights research approach used to collect the data, population and respondents, sample size and sampling methodology. After that, the details for measurement of items were presented. In this subsection, the number and sources of measurement items were identified. All of the measures were taken from past studies and validated before by several scholars, and for this reason, they have been selected. Finally, the software which was used for analysing the collected data was specified.

Data Collection and Procedure

This research used a cross-sectional method in which the data were gathered using a structured quantitative survey to measure and verify the effect of innovation capabilities on business sustainability in SMEs in the Kingdom of Saudi Arabia. Specifically, the SMEs which were selected to conduct this study included firms that involve in different business sectors, for instance, manufacturing, services, restaurants, wholesale and retailing. The targeted respondents are comprised of managers and owners of the SMEs and the data was collected from 171 participants using simple random sampling technique. After obtaining the list of respondents from selected enterprises, they were approached for participating in the study. The period of data collection was between August and November 2020, and the subsequent procedures were followed to collect the data: (a) The designed questionnaires were approved by two industry experts and two academic staff at higher education institutions to ensure the clarity and appropriateness of the questions; (b) respondents were contacted before sending the questionnaire to explain the purpose of the study and confirm their willingness in participating and answering the survey; (c) The respondents were assured of highest confidentiality of data and anonymity of the identity; (d) Some guidelines regarding the completion of the survey were provided to minimize all possible errors.

Measures

The questionnaire was developed after referring to the previously published studies on the selected constructs. In details, business sustainability was measured based on various items which were developed by Khan and Quaddus (2015). The participants were requested to rate the sustainability practices of their firms according to three key aspects, namely, environmental, economic and social sustainability with a total number of 12 items as follows—environmental (four items), economic (four items) and social (four items). Moreover, four items were employed for measuring product innovation. The items were originally validated by Jajja et al. (2014). Service innovation was also measured through five distinct items taken from Ndubisi et al. (2015) with minor modification to fit the SMEs context. Similarly, process innovation was measured through five items taken from Ndubisi et al. (2015). The measurement scales of marketing innovation were also adopted and adapted from Lin et al. (2010). The whole items which were adapted from the stated previous studies were measured on a five Likert scale type which ranges from 1 ‘strongly disagrees’ to 5 ‘strongly agree’. To analyse the collected data, PLS-SEM software was used.

Analysis of Results

The frequency analysis indicated that 72.4% of the respondents are managers, whereas 27.6% are owners. With regards to the experience background, 9.6% of the participants had less than 5 years and 33.2% had from 6 to 10 years. The participants whose work experience ranged from 11 to 15 years represented 17.8%, while 39.4% had 16 years of work experience or above. With regard to number of the staff in the firm, the frequency table indicated that 46.1% of the participants are from firms which have 5 to 25 staff. Last but not least, the descriptive statistics showed that most of the participants (58.5%) are from the service industry, 34.3% from trade industry, while 7.2% came from manufacturing sector.

In order to check the likely existence of common-method variance bias among constructs, this article relied on the CFA and single factor test of Harman (1960), and full collinearity test which is presented in the next section. When all of the 31 measurement items of the constructs were constrained to be loaded on one single common factor, the overall variance explained by the general latent variable was lower than the Harmin’s threshold value of 50%, indicating that the final model is considered free from common method bias.

Multicollinearity Test and Correlations

It is important to test the Multicollinearity before proceeding to further analysis to ensure that the data is free from significant issues. Multicollinearity arises when two or more variables have high correlation (0.9 or above) with each other in the model to be estimated (Tabachnick & Fidell, 2001). It can be tested via different methods. However, in this article, we focused on the most commonly used measure, that is variable inflation factors (VIF). The procedure using VIF has been preferred by many researchers (e.g., Ullah et al., 2021) as it provides an indication for the correlation of a variable with a set of other variables. A value of VIF that is more than 5 demonstrates there is multicollinearity. The statistical analysis for this study as presented in Table 1 show that the values of VIF in a full collinearity test are in the acceptable range (less than 5), and this indicates the is no multicollinearity issues (Podsakoff et al., 2003; Shahzad et al., 2020). Furthermore, the correlation values between the variables are also positive and significant and did not exceed 0.90 (see Table 2).

Table 1.

Collinearity Statistics

Construct	Item	VIF
Product innovation	PI1	1.801
	PI2	2.212
	PI3	1.895
	PI4	1.556
Service innovation	SI1	1.633
	SI2	1.727
	SI3	1.617
Process innovation	PRCI1	1.549
	PRCI2	2.264
	PRCI3	3.071
	PRCI4	2.669
	PRCI5	1.644
Marketing innovation	MI1	1.849
	MI2	2.044
	MI3	2.198
	MI4	1.817
	MI5	1.258
Business sustainability	ES1	2.980
	ES2	1.479
	ES3	2.500
	ES4	2.736
	SS1	2.788
	SS2	3.606
	SS3	2.487
	ENS1	2.683
	ENS2	3.266
	ENS3	2.151

Source: The authors.

Table 2.

Correlations

Construct	Marketing Innovation	Service Innovation	Process Innovation	Product Innovation	Business Sustainability
Marketing innovation	1
Service innovation	0.453**	1
Process innovation	0.497**	0.494**	1
Product innovation	0.472**	0.499**	0.461**	1
Business sustainability	0.602**	0.619**	0.635**	0.599**	1

Source: The authors.

Note: ** p < .01

In this research, the reliability of measurement scales was estimated using the Cronbach’s alpha coefficient which has also been widely used in the prior researches due to its accuracy in determining the internal consistency among measurement items. As shown in Table 3, the Cronbach’s alpha for business sustainability (0.930), product innovation (0.824), service innovation (0.789), process innovation (0.845), and marketing innovation (0.796) exceeded the minimum tolerable value of 0.7 as suggested by Hair et al. (2010). Composite reliability was also conducted to support the reliability assumptions, and the findings showed that the values for all constructs are in the tolerable range. Furthermore, the discriminant validity test among all constructs was performed based on the recommendations of Fornell and Larcker (1981). The authors highlighted that discriminant validity can be achieved when the values of square root of the average variance extracted (AVE) of each construct surpass the inter-construct correlations. Generally, the findings presented in Table 4 reveal that the discriminant validity assumptions are fulfilled.

Table 3.

CFA Analysis

Construct	Item	Factor Loading	Cronbach’s Alpha	Composite Reliability	AVE
Product innovation	PI1	0.783	0.824	0.884	0.656
	PI2	0.874
	PI3	0.821
	PI4	0.757
Service innovation	SI1	0.855	0.789	0.875	0.701
	SI2	0.859
	SI3	0.797
Process innovation	PRCI1	0.673	0.845	0.890	0.622
	PRCI2	0.774
	PRCI3	0.884
	PRCI4	0.873
	PRCI5	0.715
Marketing innovation	MI1	0.789	0.796	0.861	0.559
	MI2	0.806
	MI3	0.813
	MI4	0.755
	MI5	0.540
Business sustainability	ES1	0.804	0.930	0.941	0.617
	ES2	0.571
	ES3	0.796
	ES4	0.803
	SS1	0.793
	SS2	0.861
	SS3	0.784
	ENS1	8.842
	ENS2	0.896
	ENS3	0.749

Source: The authors.

Table 4.

Discriminant Validity

	Business Sustainability	Marketing Innovation	Process Innovation	Product Innovation	Service Innovation
Business sustainability	0.786
Marketing innovation	0.601	0.747
Process innovation	0.658	0.495	0.788
Product innovation	0.612	0.470	0.476	0.810
Service innovation	0.630	0.457	0.511	0.503	0.837

Source: The authors.

Additionally, confirmatory factor analysis (CFA) was conducted using the PLS Algorithm after removing the incomplete questionnaires and replacing all missing values for all items. CFA analysis was done in order to ensure that the items for measuring each variable are free from any error. In addition to that, CFA was executed in order to test the unidimensionality of the items of each construct and to estimate the measurement model before proceeding to the structural model and hypotheses testing. This process was done by ensuring that the factor loadings of the measurement items exceeded the threshold value of 0.5 (see Figure 2). However, two items for service innovation, two item for business sustainability, and one item for product innovation were removed because their loadings did not reach 0.5. Kenny (2012) reported that the minimum acceptable number of final items for each construct in the structural model is two. Moreover, the AVE values for all constructs (see Table 3) exceeded 0.5 which support the existence of convergent validity. Therefore, the final results of CFA have fulfilled the assumptions of convergent validity.

Figure 2.

Source: The authors.

In order to verify the proposed hypotheses, the statistical results were derived from structural model via Smart PLS-SEM. As mentioned above, the verification of the hypotheses was possible after maintaining adequate factor loadings for the items in the measurement model. The results as can be seen in Table 5 revealed that product innovation has a positive impact on business sustainability (β = 0.233, t-value = 2.489, p < .05), hence, H₁ is accepted. It was also found that service innovation (β = 0.254, t-value = 2.416, p < .05) and process innovation (β = 0.306, t-value = 3.340, p < .05) positively affected business sustainability, and this indicates that H₂ and H₃ are also accepted. Finally, the results showed that marketing innovation (β = 0.224, t-value = 3.162, p < .05) has a significant positive impact on business sustainability; hence, H₄ is accepted. All of the innovation capabilities explain 63.9% of overall variance in business sustainability.

Table 5.

Results of Hypotheses

	Hypothesis		Beta	Std Deviation	t-value	p
Product innovation	→	Business sustainability	0.233	0.094	2.489	.013
Service innovation	→	Business sustainability	0.254	0.105	2.416	.016
Process innovation	→	Business sustainability	0.306	0.092	3.340	.001
Marketing innovation	→	Business sustainability	0.224	0.071	3.162	.002

Source: The authors.

Discussion

This study was directed towards examining whether innovation capabilities, namely, product innovation, service innovation, marketing innovation, and process innovation have any effect on business sustainability in SMEs’ context. The findings revealed that product innovation is important for achieving business sustainability, and this is in line with past researches (Hamel, 1991) which reported that organizations which offer innovative products, conform to acceptable operational standards and able to satisfy different market needs through offered improved product features are likely to have better performance on the long term and can sustain their businesses in the presence of competition. Chandra and Neelankavil (2008) also verified that successful firms regularly introduce innovative products to meet customers’ expectations and outperform competitors. Additional evidence was seen in the research of Hallstedt et al. (2013) who confirmed that product innovation affects business sustainability and it is vital for brand positioning, especially when firms introduce new products that contain distinguished features and are not harmful to the environment. The results of this study also confirmed the second hypothesis which stated that service innovation has a positive impact on business sustainability. Further support was seen in the prior research which testified the importance of service innovation in determining firm performance and business survival (Eggert et al., 2014). According to Johne (1999), firms which develop their service innovations tend to engender higher profits and maintain themselves in business markets on the long-term. Other scholars (Akhisar et al., 2015; Kim & Lennon, 2017) further showed that the ability of entrepreneurs to sustain their businesses requires upgrading their products and services on continuous basis.

The empirical results also confirmed that the impact of process innovation on business sustainability is positive and statistically significant. Process innovation enables organizations to improve their production methods and delivery of available products or services, and it can be considered as an effective approach to nurture business growth and performance (Canh et al., 2019). Rousseau et al. (2016) illustrated that entrepreneurs who emphasize on innovative products and processes achieved greater performance. In addition to that, process innovation has been regarded as an important strategy to minimize production and delivery cost of each unit, improve quality, and to generate new or value-added products (Gunday et al., 2011). Bellucci et al. (2020) reported that firms can improve their business sustainability through process innovations. The authors stated that process innovation is primarily linked with the speed and quality of service delivery and business operations, and to the two other components of production performance: cost efficiency and flexibility. Therefore, it is suggested that firms have to place sufficient emphasis on the investment in process innovations, because this form of innovation has been found to be a key tool for attaining sustainable competitive advantage.

Finally, the statistical tests confirmed that marketing innovation has a positive impact on business sustainability. The finding is in agreement with Mariadoss et al. (2011) research who considered marketing innovation as a key driver of sustainable development. The earlier literature supported the finding and documented that innovation in marketing is necessary for enhancing a firm’s capabilities in offering distinguished products and services based on understanding the marketplace and the needs of customers (Akhisar et al., 2015; Galli, 2019). The statistical results reveal that innovation in marketing is a key priority for enhancing brand performance and achieving business sustainability (Quaye & Mensah, 2019). According to Martos-Partal (2012), marketing innovation is the foremost important strategy for sustaining a business. Overall, innovative firms are likely to have better brand images and maintain themselves in target markets when they emphasize on satisfying the needs of business stakeholders and come up with solutions that ensure the harmony of the society and ecological environment (Figg, 2000). Thus, entrepreneurs in the SMEs should be innovative in designing their marketing strategies (packaging, distribution network, product placement, pricing, product design and promotions) and offer the right combination of products and services to customers using advanced technologies and different media channels (Gunday et al., 2011).

Limitations and Future Research

A number of limitations exist in this research which can be addressed in the future. Firstly, this study was mainly centred towards investigating the direct effects of innovation capabilities on business sustainability. Therefore, in order to get further insights about the determinants of business sustainability in SMEs context, it is recommended to examine other predictors, for instance, digital marketing and supply chain practices. Secondly, the data in this research were collected from SMEs in the Kingdom of Saudi Arabia; hence, future studies can conduct similar research in large firms. In addition to that, convenience sampling technique has its own limitation; consequently, upcoming researches can rely on random sampling techniques to generalize the results. Moreover, the sample size employed to conduct this study was limited to the managers and owners of SMEs. Therefore, future research is suggested to rely on bigger sample sizes and target other employees in order to ensure that the reliability as well as validity of the findings are not violated. Last but not least, the data was collected from a Middle East country, hence future research can replicate the model in different regions to get greater insights and confirm the results.

Conclusion and Implications

The purpose of this research was to test whether innovation capabilities have any significant impact on business sustainability in the SMEs’ context. The findings demonstrated that all of the selected innovation capabilities are positively associated with business sustainability. The main contribution of this study consists of proposing an integrated framework for companies in order to obtain a sustainable competitive advantage through innovation capabilities. In prior studies, these capabilities of innovation have been investigated separately, hence, leaving the resulting cumulative understanding is incoherent. Moreover, there is a lack of research on marketing innovation and business sustainability, and the majority of previous studies focused mainly on product, process, and service innovations. By integrating these factors together, this research framework provides a more holistic context of improving business sustainability within organizations and contribute to institutional theory by bring new insights from a Middle East country. In addition to that, the previous researches on this topic in Middle East region are very limited; therefore, this article was designed to fulfil existing gaps in the literature. By combining innovation capabilities together as it appears in the suggested framework, the likelihood of effectively building a sustainable enterprise increases.

The findings of the present study also offer important implications for business practitioners and managers. First, managers should realize that business sustainability is vital to their firms for obtaining distinctive competitive advantages. The proposed framework could be used by the business practitioners in an attempt to integrate sustainability practices and innovation strategies into their firms for fulfilling business objectives. In other words, the growing competition in today’s dynamic business environment urges firms to focus on innovation practices for creating sustainable competitive advantages, because the most effective way a firm can follow to ensure its prosperity and survival on the long term is through innovation. Based on the above discussion, we believe that innovation capabilities provide SMEs with greater values and enable them to fulfil their economic, social, and environmental performance. Business practitioners are also recommended to build successful relationships with supply chain members who could support them in developing innovative green products. They should further adopt innovative marketing approaches through capitalizing on the internet technologies and ensure effective operations process to minimize the cost and environmental stress. For instance, using social and internet application can be useful for promoting organizational products and achieving sustainability objectives.

In summary, we believe that present study has improved our knowledge by providing empirical evidence on the linkages between innovation capabilities and business sustainability in small and medium enterprises. It is hoped that this research opens avenues for further theoretical refinement and empirical examination in this significant field of research. Based on the statistical results, firms are recommended to put greater emphasis on reinforcing their innovation capabilities when adopting sustainable practices, particularly in introducing new products and constructing or enhancing production processes in order to improve their performance. The ability of a firm to develop sustainable and innovative solutions, either by emphasizing on process innovations, service innovations, marketing innovation, and/or product innovations can be regarded as a valuable firm’s resource. Therefore, the practical implications of the research are to offer insights for business entrepreneurs and practitioners to invest in innovation for improving sustainability performance.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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