Mediating Effect of Innovation on the Relationship between Entrepreneurial Orientation and Organizational Performance of SMEs in Southern Province, Sri Lanka

Abstract

Entrepreneurial Orientation is widely used to determine the entrepreneurial behavior of an entrepreneur. Although, the Entrepreneurial Orientation (EO) is recognized as a key determinant, yet there are many inconsistencies in the nexus between EO and Organizational Performance (OP). Organizational innovation was considered as the mediating variable to address the empirical gap. The study was based on small and medium scale manufacturing enterprises established in Southern Province of Sri Lanka. 240 questionnaires were administered for the purpose of primary data. A strong positive relationship between entrepreneurial orientation and organizational performance was confirmed by the study among the manufacturing SMEs in southern Sri Lanka. The study underlined entrepreneurial orientation as one of the main elements of organizational capability to achieve competitive advantage, growth, and success. More, the study confirms an indirect effect in the nexus between EO and OP via organizational innovation. Practitioners are advised to understand the capability of organizational innovativeness and proactiveness. Also, entrepreneurs and strategic formulation bodies are needed to create an innovative entrepreneurial culture to enhance entrepreneurial capabilities and minimize the potential risk of entrepreneurs.