Strategic management, innovation capability, and firm performance among small and medium enterprises: A moderation analysis

Abstract

Small and medium enterprises (SMEs) constitute the productive foundation of emerging economies yet exhibit disproportionately high failure rates attributable partly to deficient strategic orientation and constrained innovation capacity. This study examines whether innovation capability moderates the relationship between strategic management and firm performance among SMEs in Sultan Kudarat, Philippines — a provincially underexplored context whose industrial composition and resource environment may generate dynamics distinct from those documented in metropolitan or high-income settings. Using a cross-sectional, quantitative, descriptive-correlational design, primary data were collected from 293 SME owners and managers across multiple industries through a structured questionnaire adapted from validated instruments. Descriptive statistics, Pearson product-moment correlation, and bootstrapped moderation analysis were employed. SMEs demonstrated high composite levels of both strategic management and innovation capability, and reported very high firm performance. A pronounced divergence emerged within the innovation capability profile: innovation culture rated very high while innovation resources lagged substantially, revealing a structural tension between innovative motivation and actualized innovative capacity. Strategic management was significantly and positively correlated with firm performance and with innovation capability, while the association between innovation capability and firm performance was positive but marginal. The bootstrapped interaction term was non-significant, leading to non-rejection of the moderation hypothesis. Simple slope analyses confirmed that the effect of strategic management on firm performance was uniformly significant and nearly identical across low, average, and high levels of innovation capability. These results establish strategic management as the dominant, context-invariant driver of SME performance and reconceptualize innovation capability as an independent enabler rather than a boundary condition of strategic effectiveness.