Organizational Agility as a Key Driver of Innovation Performance in SMEs and Large Enterprises

Introduction

In today's fast-paced business environment, innovation is fundamental for organizations to remain competitive, profitable, and sustainable. Organizations face continuous challenges to develop new products and services that appeal to their target market and differentiate them from their competitors. Innovation performance improves overall financial performance and efficiency of the enterprise (Crepon et al., 1998; Allocca & Kessler, 2006; Hoang & Ngoc, 2019; Lee & Xuan, 2019), and significantly determines the position and competitiveness of businesses in the market (Rubera & Kırca, 2012; Lestari et al., 2020). Innovation enables high corporate image and business sustainability (Amores-Salvadó, Martín-de Castro & Navas-López, 2014; Hidayat, Santoso, Singgih, Putra & Pangaribuan, 2022). However, the innovation process and sustainable innovation performance may not be very efficient and could have a low success rate, which is contrary to expectations. Some studies suggest that the failure rate of innovation initiatives can be as high as 90% (Castellion & Markham, 2013; Rhaiem & Amara, 2019), causing many indirect and direct losses for the business. Factors that determine the success of innovation performance include closely following the technology, reducing market uncertainty, predicting external institutional and regulatory measures and practices, and developing an appropriate response to social and political uncertainties (Jalonen, 2012). In addition, it is important to carefully read the expectations of internal or external customers in order to offer quality and satisfaction that exceeds current expectations and increases acceptance status. It is also important to be flexible in order to eliminate managerial uncertainties for the organization and to develop the appropriate response in the appropriate place and time for the best result. Berends et al. (2014) emphasize that, instead of recommending good practices of large enterprises to small enterprises, it is more important to obtain information on the market, customer expectations, and trends in the innovation process, and to develop the appropriate response in both large and small enterprises. To address these challenges, organizations are increasingly adopting organizational agility, which refers to their ability to quickly and effectively respond to changes in the market and customer needs (Helfat & Peteraf, 2015). Research has shown that organizational agility can have positive impacts on various organizational outcomes, such as operational efficiency, customer satisfaction, financial performance, and innovation performance (Pantouvakis & Dimas, 2013; Khoshlahn & Ardabili, 2016; ZareRavasan, 2021; Guo, Yin & Liu, 2023; Khan, Atlas, Ali, Ghani, & Khan, 2023; Zhou, Mavondo & Saunders, 2019). Despite its potential benefits, awareness and practices of organizational agility remain limited. For example, a study by KPMG (2019) of top managers in 17 European countries found that only 13% of senior management supported organizational agile transformation, and almost 62% reported having no knowledge of organizational agility. The Deloitte Business Agility Survey (2021) recently examined companies in developed economies in detail. The survey revealed that 67% of senior executives have organizational agility on their agenda, while 47% do not have a clear vision for why they adopt certain agile transformation approaches. This suggests that there is an awareness of the importance of adopting certain business process approaches, such as integrating technological applications into business processes, simply because they are popular. In other words, businesses seem to be choosing to work like agile without truly gaining a real and sustainable agile competency, which puts them far behind. In this context, This chapter aims to highlight the impact and importance of organizational agility as an inclusive and holistic capability to enhance innovation performance in both large and small enterprises. Rather than recommending best practices from large enterprises to small ones, it is aimed to create a comprehensive and collective resource that guides top management and practices in the field. To achieve this objective, the existing literature on organizational agility and innovation performance is summarized, and information sharing and guidance are provided on solution proposals and future studies. The chapter aims to raise awareness among readers and decision-makers in senior management. Additionally, it is expected to make significant contributions to enhancing the insights of academicians who study organizational agility and innovation performance variables.