Organizational innovation competence and organizational performance in the manufacturing enterprise: the moderating effect of environmental dynamics

Introduction

Under the changing dynamic environment, how to improve performance through systematic innovation and promote the innovation management practice of enterprises is also a common problem faced by the academic and theoretical circles. The deepening of the above-mentioned research will not only help improve the innovation competence of enterprises, but also help accelerate China's transformation from a "manufacturing power" to an "innovative power" [15] (Huang, Zhang, Xiong, 2020).

In the past few decades, many scholars have confirmed that environmental variables can affect the organization's culture, strategy, structure, process and even organizational performance. The complex, uncertain, and continuously dynamic external environment always affects the organization [14] (Bronlet, 2021). Covin found that the environment has a moderating role in the relationship between organizational strategy, structure and organizational performance [1] (Covin, 2001). Jiao Hao, et al. discussed whether there is a moderating effect of environmental dynamics in the relationship between entrepreneurial orientation and corporate performance [2] (Jiao Hao, Zhou Jianghua, Xie Zhendong, 2007). Lei Gong, et al. examined the moderating role of environmental uncertainty in the relationship between inclusive leadership and ambidextrous innovation [16] (Gong, Liu, Rong, et al., 2021).

Sohna & Junga studied the influence of creative motivation on organizational innovation performance [17] (So Young Sohna, Chan Sik Junga, 2010). Xie Hongming showed that organizational innovation competence plays an important role in organizational performance [18] (Xie Hongming, Wang Qi, Wang Cheng, 2006).

Pudjiarti identified the effects of market turbulence as a moderating construct in relation to effective organizational learning competence on the company's innovation and performance as well as on the antecedent of facilitative leadership competence [19] (Pudjiarti E. S., Hutomo P., 2020).

It can be concluded from related literature that many scholars have studied the relationship between organizations and the environment from various angles, and the relationship between organizational innovation competence and organizational performance.

However, there are few empirical studies on the relationship among environmental dynamics, organizational innovation competence, and organizational performance in the manufacturing enterprise. Previous research lacks of using methodology of structural equation model to analyze the relationship between variables.

In this paper, environmental dynamics is introduced into the analysis model as a variable, and the moderating effect of environmental dynamics on the relationship between organizational innovation competence and organizational performance is studied by using structural equation model in detail.

Theoretical basis and research hypothesis

The theory of innovation management can be traced back to Schumpeter. According to Schumpeter’s classic definition, innovation refers to a new combination of factors of production that has never been introduced into the production system. Limited to historical conditions, Schumpeter's main concern is innovation related to technology, he did not specifically study the issue of organizational innovation [21] (Xiaoyan Huang, 2022).

In this study, organizational innovation competence is a collection of various knowledge and skills and values that an organization responds to the environment quickly and effectively, planning and implementing organizational innovation.

In this study, environmental dynamics refers to the complexity and speed of changes in the external environment. The incentives for organizational innovation may be either changes in the external environment or internal needs of the organization's own growth. Changes in the external environment may pose threats to the company, and may also bring opportunities to the company, which requires the company to adjust its organizational structure, organizational processes, and organizational culture to adapt to changes in the external environment.

The complex, uncertain, and continuously dynamic external environment always affects the organization. Therefore, in the process of organizational innovation, business organizations must quickly respond to changes in the external environment [3] (Burke, Lake, Paine, 2009).

Open system theory, organizational ecology theory, cooperative competition theory and business ecosystem theory all study the relationship between organization and environment from different angles. Especially when the degree of environmental dynamics increases, whether it is the dynamics of market demand or technological development, they will all have an impact on the relationship between organizational innovation competence and organizational performance.

Li Zhengwei studied the impact of organizational learning on organizational performance in the two dimensions of environmental dynamics, and tested the moderating effect of environmental dynamics [4] (Li Zhengwei, 2003). Liu Jingjian verified the existence of the moderating effect of environmental dynamics on the relationship between organizational learning, dynamic competence, and organizational performance [5] (Liu Jingjian, 2011).

In conclusion, when market demand changes and technological development show rapid dynamics, rapid market demand changes and technological development shorten the product or technology life cycle and create a fleeting window of opportunity. The original organizational competence of the enterprise may become a factor hindering the change and development of the enterprise, and it is difficult to help the enterprise win the competitive advantage in the market. Therefore, companies operating in today's dynamic environment need to continuously cultivate and improve organizational innovation competence, and effectively respond to changes in the technological environment and market environment. And the more environmental dynamics, the more companies need organizational innovation competence to maintain and improve organizational performance. Based on the above, the following hypothesis is proposed.

Hypothesis H

The greater the degree of environmental dynamics, that is, the more unstable market demand and technological development, the more significant is the impact of organizational innovation competence on organizational performance.

Methodology

The survey process mainly takes the form of email, telephone survey and direct interview. The subjects of this survey are concentrated in coastal provinces such as Beijing, Shanghai, Guangdong, Zhejiang, Jiangsu, Tianjin, etc.

This study sent a total of 300 formal questionnaires of the "Research on Organizational Innovation Mechanism and Model of Manufacturing Enterprises", and a total of 212 valid questionnaires. The companies involved in this survey include State-owned and holding companies, Private enterprise and other.

The industries involved include 16 industries which are electronic equipment manufacturing industry, automobile manufacturing industry, pharmaceutical electronic equipment manufacturing, textile industry and clothing industry. The questionnaire uses the Likert seven-point scale. In this scale, "very high" means 7 points; "very low" means 1 point, and so on.

Variable measurement

Organizational performance. When corporate financial data is difficult to obtain or cannot accurately compare financial data of different companies, some indirect measurement indicators are usually used to measure organizational performance [6] (Tippins M. J., Sohi R. S., 2003). This research refers to the maturity scale of Gemünden, et al. [7] (Gemünden, Ritter, Heydebreck, 1996), Bell [8] (Bell, 2005). In this study, organizational performance is composed of three Item to measure (according to table 1) .

Organizational innovation competence. This research refers to the maturity scale of Liu Jingjiang [5] (Liu Jingjian, 2011), Lee and Choi [9] (Lee, Choi, 2003), Chen Zihui [10] (Chen Zihui, 2010), and based on the analysis of the research situation and the summary of some research, the content of the scale is carried out adjustment. This paper uses information technology competence, big data competence, communication and coordination competence, organizational learning competence, and organizational culture, structure and process response competence to measure organizational innovation competence. It is measured by five items (according to table 1) .

Environmental dynamics. With reference to the meter used by Li Zhengwei [4] (Li Zhengwei, 2003), and Wang Yonggui [11] (Wang Yonggui, Xing Jingang, Li Yuan, 2004), this study uses two aspects of market demand and technological development to measure environmental dynamics, and measures through three items (according to table 1).

Table 1

The index measurement of organizational innovation competence, environmental dynamics and organizational performance

Descriptive statistics of the sample

This study sent a total of 300 formal questionnaires of the "Research on Organizational Innovation Mechanism and Model of Manufacturing Enterprises", and a total of 212 valid questionnaires.

The samples of the questionnaire involved different industries in the manufacturing industry and were representative. The table 2 is a statistical table of sample enterprises by scale, industry, and nature.

Table 2

Descriptive statistical analysis of samples

Reliability and validity

According to the table 3, the Cronbach's alpha value of organizational performance is 0.880. The Cronbach's alpha value of organizational innovation competence is 0.779. The Cronbach's alpha value of environmental dynamics is 0.897.

In general, the reliability level of each scale exceeds 0.6, and there is no need to delete any questions, indicating that the entire range has high reliability. This study applied a confirmatory factor analysis method.

Table 3

Reliability statistics of organizational innovation 4 factors and organizational performance

In the structural equation model, latent variable adjustment methods can be divided into two types: product-indicator approaches and distribution-analytic approaches [12] (Zhonglin, Yan, 2011). In this study, the product-indicator approaches were used to construct new latent variables of interaction terms. According to the suggestion of Professor Zhonglin, this article adopt the paired product-indicator, that is, the measurement index of two latent variables is paired and multiplied to express the latent variable interaction term.

The paired product-indicator can be generated through different combinations. The commonly used strategy is to arrange the fully standardized factor loads of the two latent variables from large to small, and multiply the measurement indicators corresponding to the large factor loading and the large factor loading, and the small factor loading correspond to the small factor loading. But when the measurement indicators of the two latent variables are not the same, you can use "remove small factor loading " and then pair and multiply [20] (Wen Zhonglin, Liu Hongyun, Hou Jietai, 2012).

In this study, the independent variable is organizational innovation competence, the dependent variable is organizational performance, and the moderating variable is environmental dynamics. When analyzing the moderating effect of environmental dynamics, the independent variable and moderating variable are usually changed centrally (that is, the variable minus its mean value) [13] (Zhonglin, Yan, Jetai, 2013).

As the measurement indicators of organizational innovation competence and organizational performance are not the same, remove small factor loading (OIC1 and OIC5) and then pair and multiply. Then use Amos for structural equation modeling, as shown in the figure 1.

Notes: A = organization innovation competence; B = environmental dynamics;

A*B = organization innovation competence *environmental dynamics;

C = organizational performance.

Figure 1. Structural equation modeling

Source: author’s construct.

The result of figure 1.1, X²/df=2.345<3; the values of GFI, CFI, IFI, and NFI are respectively 0.911, 0.940, 0.941, and 0.901 are all greater than 0.9, which is very close to the ideal value 1; the value of RMSEA is 0.08, which means the fit is good; the value of RMR Is 0.056. This indicates that the degree of fit is acceptable.

Research results and discussion

As shown in table 2, the path coefficient of the interaction between organizational innovation competence and environmental dynamics on organizational performance is 0.983, and the P value is less than 0.001, indicating that the moderating effect of environmental dynamics is significant. Hypothesis H is supported.

Table 4

Result of structural equation modeling

A = organization innovation competency; B = environmental dynamics; A*B = organization innovation competency *environmental dynamics; C= organizational performance.

Source: author’s construct.

Most of the current researches focus on the analysis of the coordination and matching of environment and organizational models. There are not many studies on the moderating effect of environmental dynamics. This paper makes assumptions about this. The results show that environmental dynamics does play a moderating effect on the relationship between organizational innovation capability and organizational performance. That is, the greater the dynamic degree of market demand and the greater the dynamic degree of technological development, the more significant the influence of organizational innovation competence on organizational performance.

The theory of dynamic capabilities believes that in the process of dynamic changes in the environment, enterprises obtain and allocate various resources and capabilities to cope with environmental changes are the key to obtaining and maintaining a competitive advantage. Currently under the influence of the novel coronavirus epidemic, the economy is in a downturn, consumption and market demand are shrinking, and market competition continues to intensify. With the continuous improvement of the degree of environmental dynamics, the importance of organizational innovation competence to the competitive advantage of enterprises has become more apparent.

The dynamic nature of the environment requires organizations to respond quickly and accurately to various internal and external environmental changes. Therefore, through improving organizational innovation competence, meet the ever-changing needs of the market and technology faster and better, thereby improve organizational performance.

Conclusion

This article is an empirical study on the correlation between environmental dynamics, organizational innovation competence and organizational performance in the manufacturing enterprise. This article constructs the research hypothesis and a structural equation model of environmental dynamics, organizational innovation competence, and organizational performance based on the literature review and the theory of organizational innovation. Through questionnaire surveys and statistical analysis, the following conclusions are drawn:

Environmental dynamics has a moderating effect on the impact of organizational innovation competence on organizational performance in the manufacturing enterprise. Hypothesis H is supported.

This study believes that organizational innovation competence can enable companies to occupy more high-quality, scarce resources, and create new resources that support innovation activities through the process of digestion and integration. Under highly dynamic environmental conditions, take the lead in launching products or services that meet the rapidly changing market needs to gain the first mover advantage, and amplify this advantage through network externalities.

According to the research conclusions of this article, companies can take corresponding measures from the perspective of the innovation process. Enterprises can through improving organizational innovation competence, meet the ever-changing needs of the market and technology faster and better, thereby improve organizational performance.

Despite careful research and design, this study still has the following shortcomings:

This study only selected 212 companies under the Chinese background as the samples to test the theoretical hypotheses proposed in this article, and the universality of the conclusions needs to be further test.

The samples in this paper are mainly from the manufacturing enterprises in the coastal areas of China, and the empirical conclusions obtained from the samples can only be used to illustrate this enterprise organization, so its scope of application is limited.

This paper adopts Likert scoring method to measure environmental dynamics, organizational innovation competence and organizational performance, which belongs to subjective evaluation. Although we have adopted various methods to increase the reliability and validity of the measurement as much as possible, the reliability and accuracy of the study may still be weakened to a certain extent because it is difficult to evaluate it objectively. Therefore, in future research, we should use objective evaluation items and methods to measure as much as possible, and strive to improve the reliability and accuracy of variable measurement and research conclusions.