Small Knowledge-Intensive Firms’ Innovation and Performance: The Moderating Effects of Organizational Change

Purpose: First, this study examines the effect of innovation on long-term performance of small knowledge-intensive firms. Second, we explore organizational factors that may mitigate the relationship between innovation and long-term performance of small firms. Design/methodology/approach: This study applies the robustness of the ordered probit models. We utilize a data set of South Korean small knowledge-intensive firms with fewer than 500 employees. The final sample consists of 2,111 firms. Findings: The results show that innovation has a positive influence on long-term performance. Our findings also suggest that top management team(TMT) departure diminishes the effect of innovation on long-term performance and that this negative impact is more pronounced as the level of technological advancement increases. Finally, the functional diversity of employees mitigates the positive effect of innovation. Research limitations/implications: Although this study considers organizational factors that may mitigate the positive effect of innovation on long-term performance, environmental factors are not considered. Further research could identify and test additional variables that would broadly capture both firm-specific and environmental drivers of innovation for small knowledge-intensive firms. Moreover, a longitudinally designed cross-validation of the findings, and more sources of data, would enable further evaluation of causality in the hypothesized relationships. Originality/value: This study implies that innovation is the process of creating knowledge-based resources that are critical for providing a sustainable competitive advantage. This study further sheds lights on the important role of TMT members as the possessor of tacit knowledge; executive members are responsible for maintaining steady-state patterns of innovation by contributing their tacit knowledge and expertise to the firm.