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

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

Firm

Performanc

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

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Table 1. Cont.

Learning

orientation

LO1

0.775

0.673

0.935

LO101

0.850

LO111

0.797

LO2

0.843

LO3

0.811

LO8

0.808

LO9

0.857

Strategic

Improvisati

SI1

0.812

0.650

0.918

SI2

0.796

SI3

0.794

SI4

0.800

SI5

0.825

SI6

0.811

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

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

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

values

and the level of significance of the path coefficients.

Table 4: Hypothesis Result

Relationship

Std. Error

t value

Result

LO–SME

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 R² 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

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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