The effect of strategic orientation on enterprise performance with the mediating role of innovation capabilities: a case of SMEs in Hawassa, Ethiopia.

The primary goal of this research is to examine the relationship between various strategic orientations and the performance of Ethiopian SMEs in Hawassa, with an emphasis on the role that innovative capabilities play as a mediating factor. We used an explanatory sequential research design and multi-stage sampling to gather both primary and secondary data from the study area. We examined the data and research hypotheses of the suggested structural regression model using structural equation modeling (SEM), based on empirical data from 321 Ethiopian SMEs operating in Hawassa city. The SEM results indicate that small and medium-sized enterprises with a higher level of strategic orientation can ensure superior performance. The findings also indicate that innovation capabilities partially mediate the relationship between strategic orientation and SMEs performance. This study contributes to the strategic orientation and innovation framework by showing that strategic orientation creates better value through innovation capabilities and has an indirect effect on the performance of SMEs. The study also makes a valuable theoretical and practical contribution to the application of resource-based and dynamic capabilities theories within the context of SMEs. Furthermore, this study suggests that SMEs can leverage strategic insights to address the real-world challenges of innovation and performance while offering practical solutions. Hence, strategic perspectives that spread acquired knowledge and new ideas throughout internal decision-making processes ultimately enhance SMEs` innovation capabilities and performance.