Strengthen SME Performance through Learning Orientation and
Strategic Improvisation
Hatinah Abu Bakar, Mazlina Mamat and Nik Zam Nik Wan
Universiti Teknologi MARA Cawangan Kelantan, Malaysia
Keywords: SME, performance, learning orientation, strategic improvisation.
Abstract: SMEs become significant drivers of growth as Malaysia targets to become a developed and knowledgebased
country. Unquestionable, SME contribution to gross domestic product, employment and export and has been
recognized to contribute significantly to the economic performance in Malaysia. Thus, the purpose of this
research is to study the relationship between learning orientation, strategic improvisation and SME
performance. Quantitative survey method was used and data were collected from the Owner/managers who
were randomly selected from a sampling frame of registered SMEs. A total of 368 usable responses were
received. Partial Least Square (PLS) modelling was used to estimate the hypothesized research model. The
result indicates that learning orientation and strategic improvisation has significant influence on SME
performance. This study revealed SME need to enhance their learning orientation and prepared for strategic
improvisation to compete with dynamic changing business environment due to limited resources.
1 INTRODUCTION
Malaysia’s aspirations of Vision 2020 in becoming a
high income nation is a challenging task, and a great
approach is needed to speed up the growth of the
SMEs. Since SMEs create employment opportunities
and effectively allocate and distribute resources by
assembling and employing human and material
resources locally, the approach is to increase the
contribution of the SMEs to the economy. However,
according to Khalique et al., (2011) many SMEs in
Malaysia could not stay in the market with
competitive enterprises. Although SMEs constitute
about 95 percent of the average 40,000 new
companies that have registered with the Companies
Commission of Malaysia per year, more than 50
percent of the SMEs collapsed within their first five
years of operation (Reiss, 2007; Abdullah, Hamali,
Deen, Saban, & Abdurahman, 2009; Ahmad & Seet,
2009). As claimed by Ndubisi and Saleh (2006) and
Yunoh and Ali (2015) problems of SMEs are low
level of technological capabilities, limited skilled
human capital resources, low level of technology,
internal sourcing of funds and ability to produce
quality products. Tahir, Mohamad and Hassan
(2011), there is a need to focus on SME performance
by investigating the many other possible factors that
may influence it. Thus, this study aims to determine
the effects of learning orientation and strategic
improvisation in strengthen SME performance.
2 LITERATURE REVIEW
2.1 Learning orientation and SME
performance
Learning orientation is recognized as the receiving
end of the process of learning in an organization and
act as antecedent to performance (Rhee, Park & Lee,
2010; Calantone, Cavusgil & Zhao, 2002; Hult,
Hurley & Knight, 2004). Learning orientation can
enhance firm performance in different ways, through
learning about customers and competitors, which
leads to high customer satisfaction and customer
loyalty (Kohli & Jaworski, 1990). Learning allows
companies to choose target markets and enter new
markets, thus increasing performance (McCann,
1991; Zahra et al. 2000). Previous studies revealed
that learning orientation has a significant impact on
SMEs’ performance (Real et al., 2012; Wang, 2008,
Amin 2015) however Long (2013)
,
Hatch (1998) and
SantoVijade et al (2005) did not find any association
between LO with firm performance. On the other
hand, there is still lack of study regard of learning
orientation on Malaysia SME performance. Due to
this limitation, below the hypothesis is posit
Bakar, H., Mamat, M. and Wan, N.
Strengthen SME Performance through Learning Orientation and Strategic Improvisation.
In Proceedings of the 2nd International Conference on Economic Education and Entrepreneurship (ICEEE 2017), pages 299-304
ISBN: 978-989-758-308-7
Copyright © 2017 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
299
H1: There is a significant influence between learning
orientation and SME performance
2.2 Strategic Improvisation and SME
performance
McKnight and Bontis (2002), claimed improvisation
is the ability to spontaneously recombine knowledge,
processes and structure in real time, resulting in
creative problem solving that is grounded in the
realities of the moment. Meanwhile, Crossan and
Sorrenti, (2002), Moorman and Miner (1998) said
improvisation as the spontaneous action is resulted
not through a deliberate process of thought and
evaluation but on the spur of moment based on the
intuition guiding the way. As stressed by Cunha,
Cunha and Kamoche (1999), for the past 30 years,
researchers have been interested by the perception of
applying to organizations the metaphor of jazz
combos because they embrace creative uncertainty
within structured rules.
Strategic improvisation acts as the best strategy to
cope with flexibility and provide the organization
with capabilities to adapt to changing environmental
demands rapidly and effortlessly. Improvisation is
also seen as a new paradigm for strategic choice
(Eisenhardt, 1997), an important construct for a
firm’s strategic performance (Moorman & Miner,
1998). Hmieleski and Corbett (2006) strongest
relationship was found between entrepreneurial
intentions and improvisation. Hmieleski and Corbett
(2008) found that factors, like environmental
turbulence and real-time information served as
moderating factors in the relationship between
improvisation and product effectiveness. Vera and
Crossan (2005) found improvisation has a positive
effect on team innovation when combined with team
and contextual moderating factors. Ribeiro, Coelho
and Gomes (2011) found that human resources has a
direct effect on improvisation behaviour. Daly,
Grove, Dorsch and Fisk (2009) the study shows that
participants both enjoyed the improvisation training
and found it to be very valuable as preparation for
their roles in the airline. Moreover, Arshad and
Hughes (2009) and Arshad (2011), Abu Bakar,
Mahmood & Nik Ismail, (2015) who investigated the
direct impact of improvisation on firm performance
found there is a found organizational improvisation
positively affects SME performance. Nevertheless,
there is still lack of study regard to strategic
improvisation with Malaysia SME performance.
Hence, the hypothesized is developed.
H2: There is a significant influence between strategic
improvisation and SME performance.
3 METHODS
The survey site of this study is in east region
Malaysia, Kelantan, Terengganu, and Pahang. The
rationale for this selection is due to their
homogeneity, in terms of the areas and GDP
performance. Past studies on SMEs have also focused
on specific regions within Malaysia such as Awang,
Khalid, Subari and Asghar (2010) studied
Bumiputera owned SMEs in the Northern region of
Peninsular Malaysia, Mohd, Yahya, and Kamaruddin
(2012) focused on SME owner/managers in the west
coast, and Hairuddin, Noor and Ab Malik (2012) who
compared the SME establishments between the states
in the Eastern region and the west coast. A
selfadministrated survey was used to obtain the
primary data through a set of questionnaire. The
questionnaire was divided into two parts. Part A
described the predictors that SME performance. Part
B focused on the respondent demographics. Each
dimension contained multi-items measured by a five
point Likert scale. Owner/managers were targeted
because they are the key informants of the business
and usually they are involved in the overall running
of the firms. 368 responses were returned and found
useable for the final analysis using the structural
equation model partial least square (SEMPLS 3).
4 FINDINGS
4.1 Validity Assessment
The validity of the measurement model was assessed
by testing the convergent validity and discriminant
validity. The convergent validity exists when the
indicators of one construct converge or share a higher
proportion of variance. Hair, Ringle and Sarstedt
(2011) claimed the quality of the measurement model
was assessed by examining convergent validity
includes factor loading, average variance extracted
(AVE) and composite reliability (CR).
Table 1: Result Convergent Validity
Constructs
Items
Loadings
AVE
CR
Firm
Performanc
e
FP1
0.684
0.609
0.925
FP2
0.719
FP3
0.789
FP4
0.767
FP5
0.806
FP6
0.799
FP7
0.809
FP8
0.854
ICEEE 2017 - 2nd International Conference on Economic Education and Entrepreneurship
300
Table 1. Cont.
Learning
orientation
LO1
0.673
0.935
LO101
LO111
LO2
LO3
LO8
LO9
Strategic
Improvisati
on
SI1
0.650
0.918
SI2
SI3
SI4
SI5
SI6
AVE: Average Variance extracted; CR: Composite Reliability
Above table indicates that, indicator loadings for
all items exceeded the recommended value of 0.5
(Hair, Black, Babin & Anderson, 2009). Average
variance extracted (AVE) were in the range of 0.609
and 0.673, meanwhile composite reliability (CR)
which is above the recommended value of 0.5, and
ranged from 0.918 to 0.935 which exceeded the
recommended value of 0.7 (Hair et al., 2009).
4.2 Discriminant validity
The discriminant validity of the measurement items
was tested through the criteria suggested by Fornell
and Larcker (1981) and Heterotrait Monotrait Ratio
(HTMT) (Henseler, Ringle & Sarstedt, 2015). Fornell
and Larcker (1981) have suggested examining
whether the square root of the average variance
extracted (AVE) for each construct is greater than the
correlation between the constructs. Meanwhile, using
the HTMT as a criterion involves comparing it to a
predefined threshold. If the value of the HTMT is
higher than this threshold, one can conclude that there
is a lack of discriminant validity. Clark and Watson,
(1995), Kline (2011), suggest a threshold of 0.85,
whereas Gold, Malhotra and Segars, (2011) propose
a value of 0.90.
Table 2: Fornell and Larcker
FP
LO
SI
Firm Performance
(FP)
0.780
Learning
orientation (LO)
0.698
0.821
Strategic
Improvisation(SI)
0.704
0.800
0.806
Table 3: Heterotrait-Monotrait Ratio
FP
LO
SI
Firm Performance
(FP)
Learning
orientation (LO)
0.752
Strategic
Improvisation(SI)
0.772
0.881
Table 2 shows the correlation matrix in Fornell
and Lacker, where the diagonal figures represent the
square root of the AVE extracted of the constructs.
The test results indicate that there is adequate
discriminant validity since the diagonal elements are
significantly greater than the off-diagonal elements in
the corresponding rows and columns. Then, for
HTMT (see table 3) the result shown the values are
less than 0.90 indicates that discriminant validity is
fulfilled the threshold.
Figure 1: Structural Model
4.3 Hypotheses Testing
Path analysis was performed to evaluate the structural
model. Based on Hair et al; (2011), the primary
evaluation criteria for structural model are R
2
values
and the level of significance of the path coefficients.
Table 4: Hypothesis Result
Relationship
Std. Error
t value
Result
LOSME
performance
0.050
7.437
Supported
SI -SME
performance
0.049
8.279
Supported
LO: Learning Orientation, SI: Strategic Improvisation.
Note: if the t-value is greater than 1.645(*p<0.05)
Strengthen SME Performance through Learning Orientation and Strategic Improvisation
301
Based on Figure 1, the was found 0.546,
indicating that learning orientation management and
strategic improvisation can account for 54.6% percent
of the variance in SME performance, which represent
a substantial range. Based on Cohen (1988) for a good
model, the value of R
2
of endogenous latent variable
should be more than 0.26.
The results indicate that the learning orientation
and strategic improvisation have a significant
relationship with SME performance. The result found
that LO (ß= 0.050, t values = 7.437) and SI (ß=
0.049, t-value = 8.279) (Table 4). Therefore, H1 and
H2 are supported.
5 CONCLUSIONS
Results from this study determined that significant
relationship between orientation learning orientation
and strategic improvisation with performance of
SMEs. Thus it indicates that learning orientation and
strategic improvisation as important factors for
successful SMEs performance. Studies have shown
that high rates of economic growth that contribute to
economic and social development and poverty
reduction are closely linked with the SME
development. Consequently the future progress of
Malaysia seems to depend greatly on the development
of SMEs and they are vital for accomplishing vision
2020 where Malaysia hopes to be fully developed and
become an industrialized nation by the year 2020 by
capitalizing on the country’s strengths and
overcoming its weaknesses through the SMEs (Omar
et al., 2009). Therefore the encourage the learning
orientation (commitment to learn, share vision, open
mindedness) and strategic improvisational actions
that can create competitive advantage, encourage and
respond any changes to cope in competitive business
environment to ensure the survival of the SME
company.
This study is a survey based study
(questionnaires). One limitation of survey study is the
problem of internal validity (Burney, Henle, &
Widener, 2009). Thus, a mixed methods study, both
quantitative and qualitative study will overcome this
limitation. The respondents only comes from owner
as informant, the next study the participation from all
level of employees may provide more accurate results
for this study. The researcher also can focus
comparison of across different industries and
geographic regions. This would have made the
findings of this study more generalizable.
ACKNOWLEDGEMENS
We would like to thank Universiti Teknologi MARA
Cawangan Kelantan for financial and administrative
support.
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