Why Not All Capabilities Improve Performance: The Mediating Role of Product Innovation in MSMEs

Teman Koesmono; Robertus Adi Nugroho

doi:10.55524/ijirem.2026.13.2.22

Abstract

This research investigates the influence of internal organizational and behavioral elements on entrepreneurial performance, specifically product innovation intervening in Micro, Small and Medium Enterprises (MSMEs). In particular, this study examines the role of learning organization, organizational culture, work motivation and entrepreneurial orientation on entrepreneurial performance. This is quantitative research using the survey method with 175 respondents of MSME entrepreneurs in Surabaya, Indonesia. All data were analyzed with Structural Equation Modeling (SEM) to examine both indirect and direct relationships among variables. The results showed that the influence of organizational culture and entrepreneurial orientation on product innovation and performance was positive and significant, learning organization had a positive effect but not significantly through product innovation, both work motivation also affected performance positively but insignificantly. Most importantly, the findings show that product innovation is the most significant determinant of entrepreneurial success and a key mediation mechanism (especially in terms of performance). This research adds to the literature by showing that capabilities-performance relationship is not direct but rather it applies through innovation which acts as key transformational mechanism for impact of internal capabilities on performance. The contextual limitations of learning organization at the MSME level provide important insights with formal structure limiting informal structures to be key drivers of innovation. In practice, the findings indicate that MSME entrepreneurs need to adapt innovation-dominated strategies and create an organizational atmosphere oriented towards creativity, proactiveness, adaptability as these could lead to sustainable business performance.

Keywords

Entrepreneurial Performance; Product Innovation; Learning Organization; Organizational Culture; Work Motivation; Entrepreneurial Orientation; MSMEs.

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Cites this article as

T. Koesmono, R. A. Nugroho, " Why Not All Capabilities Improve Performance: The Mediating Role of Product Innovation in MSMEs", International Journal of Innovative Research in Engineering and Management (IJIREM), Vol-13, Issue-2, Page No-169-181, 2026. Available from: https://doi.org/10.55524/ijirem.2026.13.2.22

Corresponding Author

Robertus Adi Nugroho

Associate Professor, Management Department, Faculty of Economics, Darma Cendika Catholic University, Surabaya, Indonesia

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