Journal of Social Service Research

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A Study of the Relationship Between Innovation

and Performance Among NPOs in Pakistan

Muhammad Anwar, Sher Zaman Khan & Syed Zulfiqar Ali Shah

To cite this article: Muhammad Anwar, Sher Zaman Khan & Syed Zulfiqar Ali Shah (2019): A
Study of the Relationship Between Innovation and Performance Among NPOs in Pakistan, Journal
of Social Service Research, DOI: 10.1080/01488376.2018.1516265

To link to this article: https://doi.org/10.1080/01488376.2018.1516265

Published online: 06 Jan 2019.

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JOURNAL OF SOCIAL SERVICE RESEARCH
https://doi.org/10.1080/01488376.2018.1516265

A Study of the Relationship Between Innovation and Performance Among

NPOs in Pakistan
Muhammad Anwara , Sher Zaman Khanb and Syed Zulfiqar Ali Shahb
a
Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan; bUniversity of Science and Technology,
Beijing, China

ABSTRACT KEYWORDS
Innovation has become a core driver for the success and survival of organizations regardless Innovation; performance;
of their size and nature. A plethora of literature has discussed the importance of innovation nonprofit organizations;
in profit-based organizations, while nonprofit organizations (NPOs) have generally been NGOs; emerging economy
ignored in research. This study examines the influence of the sub-dimensions of innovation
on the performance of NPOs. Data were collected through structured questionnaires using a
sample size of 309 NPOs operating in the emerging market Pakistan. The hypotheses were
tested through structural equation modeling (SEM) in AMOS.21. The results indicate that
process innovation and organization innovation have significant positive influence on the
performance of NPOs, while product innovation and marketing innovation have insignificant
influence on the performance of NPOs. NPOs are advised to give enough attention to pro-
cess and organization innovation in order to boost their performance. Future researchers
are encouraged to test the model in other environmental settings. Implications for practice
were discussed.

Introduction prior studies (Chen et al., 2017; Choi, 2016; Hull

Over the last few decades, nonprofit organiza-
tions (NPOs) have grown out of informal activ-
ities to include business practices and innovative
activities in order to acquire higher performance
levels to ensure their sustainability (Hwang &
Powell, 2009; Lurtz & Kreutzer, 2017). This move
has been caused by the big pressure from exter-
nal environment and profit based organizations
(Chen, Lee, & Chen, 2017; Choi, 2014;
McDonald, 2007). As put by Romaioli, Nencini,
and Meneghini (2016), a great change has been
observed over last few decades in volunteer sector
organizations. In such pressure and competitive
environment, innovation may be the only choice
for survival of NPOs (Choi, 2016; McDonald,
2007). Many studies have been carried out on the
role of innovation in business organizations
(Anwar, 2018; Gunday, Ulusoy, Kilic, & Alpkan,
2011; Hashi & Stoj
cic, 2013; Hassan, Shaukat,
Nawaz, & Naz, 2013). However, NPOs have been
relatively neglected, or under-emphasized, in
& Lio, 2006). In particular, role of the different
types of innovation (namely product innovation,
process innovation, marketing innovation, and
organizational innovation) in NPOs has somehow
escaped the attention of researchers and finds no
place or meaningful mention in prior studies.
Taking cognizance of the fact that NPOs are now
a days increasingly including profit based activ-
ities in their operations (Choi, 2014; Maier,
Meyer, & Steinbereithner, 2016). This study aims
to examine the influence of different types of
innovation including product innovation, process
innovation, marketing innovation, and organiza-
tion innovation on the performance of NPOs
working in the emerging market Pakistan. NPOs
in Pakistan operate in different forms and serve
communities in the fields of education, health,
poverty alleviation, water systems and infrastruc-
ture development, etc. Market conditions in
Pakistan are unstable and uncertain. For instance,
Anwar, Shah, and Khan (2018) claimed that

CONTACT Muhammad Anwar m.anwar.ims@gmail.com Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan.
Color versions of one or more of the figures in the article can be found online at www.tandfonline.com/wssr.
ß 2019 Taylor & Francis Group, LLC
2 M. ANWAR ET AL.
many reputed firms failed in the emerging mar-
ket Pakistan and many of them are entered into
international and stable markets. It gives alarm-
ing signals for volunteers and NPOs to put for-
ward strategies for “how to survive in the
dynamic market?”. NPOs do not receive special
incentives from governments, so they often do
their operational activities in a variety of way to
survive. Hereafter, there is a substantial need to
examine either NPOs improve their performance
through product, process, marketing or organiza-
tion innovation or do charitable work?”.
Literature has identified several types of innov-
ation. The term innovation does not have a single
line universally accepted definition; it is defined
with several aspects (Jaskyte, 2017). For instance,
Schumpeter (1934) defined different forms of
innovation: new methods of production, the
exploitation of new markets, new products, new
sources of supply and new ways to consolidate
business. Drucker (1985) stated that innovation is
the process of arming in new, amended capabil-
ities or increment utility. However, a few types of
innovation such as product innovation, process
innovation, marketing innovation and organiza-
tion innovation have significant importance in
today’s business organizations (Hassan et al.,
2013). Not so surprisingly, each innovation type
influences other innovation types and the types
of innovation often work in a cycle (Walker,
2004). The key reason to adopt an innovation is
to gain higher performance and competitive edge
regardless of firms types (Gunday et al., 2011).
NPOs typically have five key characteristics, (a)
they are organized as institutions, (b) they are
private and they do not belong to government,
(c) they have self-governance (control and man-
age their activities), (d) they are not working for
profit (do not distribute profit to “owners,”
instead any surplus income generated by their
activities is used for meeting the organizational
objectives), and (e) having voluntarily participa-
tion in activities (Anheier, 2005).
NPOs provide adequate and complete picture
of entrepreneurship and innovative behaviors
that are closely linked to profit based organiza-
tion (Morris, Webb, & Franklin, 2011). Although,
there is a difference between the activities and
work of for-profit firms and NPOs but there is
no significant difference in the context of entre-
preneurial orientation between these two forms
of organizations (Davis, Marino, Aaron, &
Tolbert, 2011). It has been observed that NPOs
build strategy (i.e. for product, price, placement,
and promotion) in their own way to gain com-
petitiveness which may or may not be related to
profit organizations (Moreno, Iba~ nez, & Perez
2016). It is now widely accepted that innovation
is a critical success factor that enhances and
improves performance of NPOs (Chen et al.,
2017). This study is significant for NPOs operat-
ing in emerging economies as well in developed
economies that are engaged in innovative activ-
ities and change. It helps executives and top
managers of NPOs to balance their attention to
different types of innovation to improve perform-
ance. To summarize, this study expounds on the
role of innovation in the performance of NPOs
to answer the question “Do the types of innov-
ation (i.e. product innovation, process innovation,
marketing innovation, and organization innov-
ation) impact the performance of NPOs”?
The idea of NPOs in Pakistan goes back to
1947 when this country was carved out of India
as a separate political entity. At that time, a large
number of voluntary organizations emerged to
support the refugees coming to the newly estab-
lished country (Pakistan) from different parts of
India. The second generation of NPOs started in
1970 when Pakistani Government launched a
program for promoting the social and welfare
work. However, with the passage of time,
Government of Pakistan established rules and
authorities under which NPOs should be regis-
tered (see “Methodology” section). By the advent
of twenty first century, a large number of NGOs
had surfaced in the field of development and
advocacy. Today, there are numerous national
and international NPOs working in Pakistan and
providing services to communities in different
forms and at different levels. In addition to spe-
cific services, they also provide clothes, medi-
cines, water pumps, solar system, emergency
support, rehabilitation and family planning advice
freely to facilitate poor and needy societies. It is
now fairly common for a number of NPOs to
engage in commercial activities that generate
profits which augment their ability to provide

free or subsidized services to deserving people.
However, as a secondary goal of this study, we
also explore the extent to which involvement of
NPOs in commercial activities is helping or dis-
tracting them from their principal goals of social
service. We suppose to add here that even if an
NPO is not engaged in any commercial activity
and relies solely on philanthropic support, it still
requires innovation in its processes, services and
operations in order to achieve sustainability.
Hence, this study is relevant to all NPOs regard-
less of the extent to which they are engaged in
commercial activities.
Underpinning theory
NPOs are the result of the specific form of entre-
preneurial behavior and various objectives and
functions of NPO are associated with entrepre-
neurial activities (Badelt, 1997). According to
entrepreneurship theory in NPOs, the entrepre-
neurial behaviors describe “why NPOs are created
and how they commit the delivery of services”
(Badelt, 1997). The present study specifically
attends to the innovative behavior of NPOs; it is
therefore necessary to elaborate the theoretical
background relating to the role of innovation
in NPOs.
From innovative perspective, Schumpeter’s the-
ory of entrepreneurship characterized NPOs (e.g.
Badelt, 1997). This can pigeonhole the NPOs
capacities to create new and unique kinds of
products and services. This approach is not
always applicable but the hypothesis is exposed
for empirical tests (Badelt, 1997). Moreover,
applying Schumpeterian entrepreneurship theory
to NPOs is sensible in several perspectives. For
example, prior literature has argued that NPOs
are persistently engaged in the development of
new products and services as do profit based
organizations in order to gain higher efficiency
(Chen et al., 2017; Choi, 2014). NPOs provide
more suitable environment of innovation and
entrepreneurship in today’s dynamic market
(Choi, 2014; Morris et al., 2011). In addition, the
term social entrepreneurship attaches equal
importance to profit and NPOs. Social entrepre-
neurship is a practice which consists of a blend
of resources designed for recognizing and
JOURNAL OF SOCIAL SERVICE RESEARCH 3
availing opportunities to address social needs
(Mair & Marti, 2006). This practice may show
outcome in the distribution of products and serv-
ices within present organizations or in the forma-
tion of new social ventures that may be formed
for profit or nonprofit purposes in legal form
(Townsend & Hart, 2008).
Hypothesis development
Product innovation and nonprofit performance
Product innovation refers to introduction of new
products and services or bringing about a signifi-
cant change in the present or existing products
or services (Polder, Leeuwen, Mohnen, &
Raymond, 2010). As discussed earlier, the defin-
ition of innovation is diverse (Choi, 2014).
Product innovation takes place only with bring-
ing about a significant change in the characteris-
tics of existing products, or coming up with
totally new and unique products (OECD Oslo
Manual, 2005). In addition, it is suggested that
product innovation can occur in several dimen-
sions. First: from the perspective of the custom-
ers, where customers perceive the products as a
novel one. Second: from the perspective of the
firms, where firms think that the product is
unique one. Third: product modification which
refers to altering or modifying the existing prod-
ucts (Atuahene-Gima, 1996).
In the dynamic environment, firms must offer
products according to market trends in order to
gain customer satisfaction (Adner & Levinthal,
2001). Product innovation is one of the crucial
features that add to the success of firms. New
product development and product innovation is
an imperative approach for enhancing the market
share and performance of the firms (Ettlie &
Reza, 1992). Firms intend to gain efficiency by
introducing new products through innovation
(Polder et al., 2010). The key significant advan-
tage associated with new product development in
competitive market is that the newly developed
product faces lower competition in the market,
thus it gives higher performance to firms
(Roberts, 1999). Not only business organization,
but NPOs also give consider focus to product
4 M. ANWAR ET AL.
diversification in order to gain efficiency
(Mendoza-Abarca & Gras, 2017). Therefore;
H1. Product innovation has significant influence on
the performance of NPOs
Marketing innovation and nonprofit
organization’s performance
Marketing innovation aims to bring or imple-
ment new methods of marketing that may be
associated with a significant change in packing,
designing, placement, product promotion, and
pricing strategy (OECD Oslo Manual, 2005).
Research has also suggested that marketing
innovation is a non-technology innovation where
firms bring newness in marketing methods and
approaches to gain effectiveness, efficiency, and
high performance (Polder et al., 2010). NPOs in
emerging market such as China do not com-
pletely use formal market oriented strategy.
However, using formal global marketing strategy
may increase performance of NPOs in such mar-
kets (Moreno et al., 2016). NPOs face distinctive
barriers when they implement the concept of
market orientation. However, scarce research
exists in this background (Balduck, Van Rossem,
& Buelens, 2010). In the presence of huge mar-
keting pressure, NPOs have come to realize that
marketing is one of the core operational business
areas that is needed for firms’ survival in today’s
market. However, many NPOs are still unable to
understand the marketing approaches properly
and a very few nonprofit firms are engaged in
marketing innovation and research (Dolnicar &
Lazarevski, 2009). Therefore, the proposed
hypothesis is
H2. Marketing innovation has significant influence on
the performance of NPOs
Process innovation and nonprofit organizations
Process innovation means a significant change in
production or delivery methods that may be asso-
ciated with the change in technique, equipment
and software (OECD Oslo Manual, 2005).
Processes innovation in organizational structure
facilitates to achieve objectives and superior per-
formance (Miranda, Farias, de Ara ujo Schwartz,
& de Almeida, 2016). Process innovation has
become a major factor of organization success
and significantly influences competitiveness and
productivity. Firms have shown their interest to
spend money and time on process innovation to
enhance performance (Hashi & Stoj
cic, 2013).
Empirical studies have shown that process
innovation is the significant predictor of NPOs
performance (Alshammari, Rasli, Alnajem, &
Arshad, 2014) as well as it significantly contrib-
utes to firm performance in emerging markets
(Hassan et al., 2013). Thus, it can be argued that
NPOs with innovative methods of delivery and
technique can significantly improve their market
performance. Hence, the next hypothesis is
H1. Process innovation has significant influence on the
performance of NPOs
Organization innovation and nonprofit
organization
Organization innovation occurs when an organ-
ization brings or implements new methods in
practices, workplace and external relationships
(OECD Oslo Manual, 2005). It is evident that
organization innovation supports technological
innovation which in turn provides the develop-
ment of new processes and products to gain
superior performance (Camis on & Villar-Lopez,
2014). Inspired by the increasing competition in
universal markets, firms have started to appreci-
ate the importance of innovation, since promptly
changing technologies and Spartan global compe-
tition quickly erode the value of existing products
and services. Thus, firms look up to the technol-
ogy innovation as a “piston” for competitiveness
that can be entrenched in organization structure,
processes, products, and services (Gunday et al.,
2011). Because of its context-specific nature,
organization innovation has become one of the
most significant drivers for firm’s competitiveness
(Hamel, 2009). Thus empirical study in this
nature has pointed out that NPOs with strong
innovation structure performance better (Choi,
2016). Typically, when NPOs adopts innovative
behavior in practices, workplace and builds exter-
nal relationship, they are able to respond appro-
priately to the external change and environment

Table 1. Profile of the NPOs.
Variables Frequency Percentage of total
Age of the organizations
1. 10 years and less 105
2. 11–20 years 115
3. 21 and above years 89
Size of the organizations
1. Less than 100 employees 14
2. 101–200 employees 50
3. 201–300 employees 51
which helps to reduce competitive pressure and
improve performance (Miranda et al., 2016).
Significant positive relationship was found
between organization innovation and firm per-
formance (Hassan et al., 2013). Organization
innovation significantly positively contributes to
the performance of NPOs (Verschuere,
Beddeleem, & Verlet, 2014). Therefore
H1. Organization innovation has significant influence
on the performance of NPOs
Methodology
Sample
A total of 309 Pakistani NPOs participated in
this study, as shown in Table 1. Classified on the
basis of age, 105 are 10 or less years old, 115
NPOs were created 11–20 years ago while 89
NPOs are over 21 years old. Classified on the
basis of size (as determined by the number of
their employees), 14 NPOs had <100 employees,
50 NPOs had between 101 and 200 employees,
51 NPOs had between 201 and 300 employees,
114 NPOs had between 301 and 400 employees
and 80 NPOs had more than 400 employees. It is
noticed that majority of NPOs were employing
between 350 and 450 persons. These employees
are working in head offices as well as sub-offices
of the NPOs. The participants of the study were
only executives and top managers of the NPOs.
We decided not to collect data on the specific
profile of respondents due to its irrelevance to
the study.
Instruments
A structured questionnaire was used to collect
data relevant to this study. The questionnaire
covered the following information. The four
JOURNAL OF SOCIAL SERVICE RESEARCH 5
major dimensions of innovation; product innov-
ation, process innovation, marketing innovation
34.0
and organization innovation were used as inde-
37.2 pendent variables in the study. The items used
28.8
for these constructs have also been validated in
4.5 prior studies (Gunday et al., 2011; Hassan et al.,
16.2
16.5 2013). However, as per nature of units and study
requirement, the items were slightly modified to
make them more suitable for a study on NPOs.
To measure product innovation, five items were
used and the sample item indicates “Developing
new products with components and materials
totally differing from current ones.” To measure
process innovation, five items were used of which
a sample item indicates “Determining and elimi-
nating non-value adding activities in delivery
related processes.” Measures related to the mar-
keting innovation pertain newness towards mar-
keting activities where five items were used;
including a sample item “Renewing the product
promotion techniques employed for the promo-
tion of current and/or new products.” Gunday
et al. (2011) used four items but the study added
one additional item which we considered neces-
sary and relevant; it asked about active look or
readiness for market change to gain more fruitful
results. Organization innovation was measured
with nine items which reflect innovativeness
toward organization structure and practices. The
sample item indicates as “Renewing the human
resources management systems” etc.
We used six items to measure the performance
of NPOs in this study. The items were adopted
from the prior study of Chen and Hsu (2013).
The performance of NPOs pertains to the satis-
faction of customer and employees about organ-
ization etc. The sample item indicates “our
employees are satisfied with services of the organ-
ization” etc.
All the variables of the study were measured
on a five-point Likert Scale ranging from strongly
disagree 1 to strongly agree 5.
Procedure
Structured questionnaire was used to collect data
from executives and senior managers of NPOs
operating in Pakistan. It is difficult to get total
number of NPOs in Pakistan because majority of
6 M. ANWAR ET AL.

Table 2. Mean, SD, and normality.

Collinearity statistics
Mean SD Skewness Kurtosis Tolerance VIF
Product innovation 2.9296 0.30902 –1.064 –0.613 0.894 1.118
Process innovation 2.6236 0.32316 –0.330 –0.307 0.897 1.115
Marketing innovation 3.5195 0.29837 –1.575 0.949 0.789 1.267
Organization innovation 3.3954 0.30219 –1.714 1.589 0.967 1.034
Nonprofit performance 3.0637 0.34187 –0.635 –0.572 – –
Note. SD, standard deviation; VIF, variance inflation factor.

NPOs are still un-registered. According to the
Spokesperson of Pakistan Centre for
Philanthropy (PCP) a certification organization
for NGOs and charity institutions “No one really
has any idea of the number of NPOs operating in
the country.” This makes it difficult to assess the
population size for the purpose of this study.
However, this study focused on only registered
NPOs that were engaged in the formal services.
NPOs in Pakistan can be registered under the fol-
lowing six major Laws.

Societies Registration Act 1860: for cultural, pro-
fessional, and educational work

The Trust Act 1882: charity purpose

Cooperative Societies Act 1952

The Voluntary Social Welfare Agencies
Ordinance 1961: for welfare activities

The Companies Ordinance 1984: allows organ-
ization to register as NPO

Income Tax Ordinance 2001: tax exemption for
which an NPO is eligible
Random NPOs were selected from those regis-
tered under the above six major laws:
Three big cities of Pakistan Karachi, Lahore,
and Islamabad were targeted as majority of NPOs
have their head offices in these cities. The top
management (e.g. CEOs, executives, and manag-
ers) were contacted to fill the survey form
because they are more aware about strategic plan-
ning and are responsible for organization per-
formance (Tajeddini & Mueller, 2012). Pencil and
hard copy questionnaire was used for data collec-
tion. Email survey was avoided as it has generally
a very low response rate. It was clearly asserted
in the cover letter of the questionnaire that data
will be used only for research purpose and the
organizations information will not be disclosed to
public. The questionnaire’s length was kept short
enough to be answered in approximately
8–10 min. Participants were not required to
divulge their personal or organization’s name;
they were requested to provide the information
voluntarily. Out of total 800 questionnaires, 351
questionnaires were received back. Some ques-
tionnaires were filled incorrectly and did not ful-
fill the study requirement, hence, those were
excluded from analysis. Total 309 usable
responses were considered for final analysis, giv-
ing us a response rate 38.63%.
Control variables
In order to eliminate the spurious results, this
study controlled for size and age of organization
to measure the influence of innovation on the
performance of NPOs. The results indicated that
age of organization has insignificant influence
while size of organization has a significant influ-
ence on the performance of NPOs.
Analysis and results
This study performed structural equation model-
ing (SEM) in AMOS.21 to test the hypotheses.
However, there are certain assumptions such as
normality and multicollinearity that should be
considered before applying AMOS.21. Skewness
and kurtosis were used in SPSS to check for data
normality. The results presented in Table 2 indi-
cate that the data are normal as all the constructs
have skewness and kurtosis values in the accepted
range ±2 recommended by (George &
Mallery, 2010).
Table 2 shows the values of mean, SD, and
normality of the constructs. Product innovation
(mean 2.93, SD 0.31), process innovation (mean
2.62, SD 0.32), marketing innovation (mean 3.52,
SD 0.30), organization innovation (mean 3.40, SD
0.30), and the performance of NPOs have (mean
3.10, SD 0.34).

Figure 1. Measurement model.
This study performed variance inflation factor
(VIF) in SPSS to check for multicollinearity. The
results indicated that each of the construct has
VIF value <3 which means that there is no mul-
ticollinearity issue in the study (Neter,
Wasserman, & Kutner, 1983). Even, Hair, Black,
Babin, and Anderson (2010) suggested that VIF
value <10 indicates the absence of multicollinear-
ity. VIF of the constructs are shown in Table 2.
Common method bias
Since, data collected through single source at same
time may lead to potential common method bias
(CMB) that may threaten the validity of the results
JOURNAL OF SOCIAL SERVICE RESEARCH 7
(Podsakoff & Organ, 1986). Harmon’s one factor
test is applied to check if CMB creates problem.
The results indicated five factors with eigenvalues
above 1 of which the first factor explained only
27.75% variance out of total 70.60% variance
explained by all the factors. Thus, the results con-
firmed that there is no problem of CMB, as the
first factor does not explain a major variance
(Podsakoff & Organ, 1986). In addition, the
impact of common latent factor was assessed in
measurement model. The results indicated that
there is significant relationship between the
hypothesized items and their respective construct.
Moreover, AVE of the latent factor indicated
lower values that confirmed the absence of CMB.
8 M. ANWAR ET AL.
Confirmatory factor analysis Table 3. Factor loadings.
Items
This study performed confirmatory factor ana-
lysis (CFA) to check the validity, reliability, and prdi1
multidimensionality of all the constructs. Figure prdi2
1 shows the measurement model. The results
prdi3
indicated that the model is well fitted in the con-
text of chisq/df, goodness-of-fit index (GFI), prdi4
comparative fit index (CFI), normative fit index
(NFI), root mean square residual (RMR), and prdi5
root mean square error of approximation
(RMSEA). The model fitness (see Table 5) of the prci1
measurement model indicated that chisq/df has
prci2
value 1.485 that is below 3 recommended by
prci3
prior studies (Hair et al., 2010; Hu & Bentler,
1999). The values of GFI ¼0.90, AGFI ¼0.88, prci4
CFI ¼0.97, TLI ¼0.97, and NFI ¼0.92 indicated prci5
good model fitness as prior studies recommended
that the values close to 1 indicate well fitted mki1
model (Hair et al., 2010; Hu & Bentler, 1999).
The values for RMR ¼0.009, RMSEA ¼0.040 also
mki2
indicate a good model fitness as the values below
0.080 and close to 0.05 (Hair et al., 2010; Hu &
mki3
Bentler, 1999). Standardized factor loading of
each item above the accepted range (0.70) and mki4
loaded significantly (p < 0.001) presented in
Table 3. However, there were few items which mki5
have standardized factor loadings below (0.70)
but prior studies have recommended that the val- orgi1
ues close to (0.70) are considered acceptable if
other items of the specific construct give accept- orgi2
orgi3
able validity (Hair et al., 2010; Hu &
Bentler, 1999). orgi4
Thus, the criteria for model fitness were orgi5
achieved in all cases. However, Barclay et al.
orgi6
(1995) recommended that it is necessary to check
the model’s validity and reliability before testing orgi7
hypothesis in structural model. Thus, the validity
orgi8
and reliability were assessed.
orgi9
Validity
npp1
The present study tested convergent validity, dis- npp2
criminant validity and composite reliability of the npp3
constructs before testing hypothesis through npp4
structural model. The results of validity and reli- npp5
npp6
ability are presented in Table 4. In the study, all
the constructs have convergent validity above the Note. Significant (p < 0.001).
benchmark value (0.50) that demonstrate the
Descriptions Loadings
Product innovation
Increasing built-up quality in components and 0.714
materials of current products/services
Decreasing manufacturing/delivering cost and 0.838
materials of current products/services
Developing newness for current products/services 0.961
leading to improved ease of use for customers
and to improved customer satisfaction
Developing new products/services with technical 0.628
specifications and functionalities totally differing
from the current ones
Developing new services with components and 0.723
materials totally differing from current ones
Process innovation
Determining and eliminating non-value adding 0.609
activities in production/delivering processes
Decreasing variable cost components in built-up 0.974
processes, techniques, equipment and software
Increasing output quality in built-up processes, 0.623
techniques, equipment and software
Determining and eliminating non-value adding 0.728
activities in delivery related processes
Decreasing variable cost and/or increasing delivery 0.681
related logistics processes
Marketing innovation
Renewing the design of the current or new prod- 0.858
ucts/services through changes such as in
appearance, shape and volume without chang-
ing their basic technical and functional features
Renewing the distribution channels without chang- 0.608
ing the logistics processes related to the deliv-
ery of the products/services
Renewing the product/service promotion techni- 0.804
ques employed for the promotion of current
and/or new products/services
Renewing the product/service pricing techniques 0.836
employed for the pricing of the current and/or
new products/service
We are focusing market demands and trends and 0.758
readiness for change in market proactively
Organization innovation
Renewing the routines, procedures and processes 0.849
employed to execute the firm activities in
innovative manner
Renewing the supply chain management systems 0.860
Renewing the production and quality manage- 0.586
ment systems
Renewing the human resources manage- 0.568
ment systems
Renewing the in-firm management information 0.568
system and information sharing practice
Renewing the organization structure to facilitate 0.884
coordination between different functions like
marketing and manufacturing
Renewing the organization structure to facili- 0.886
tate teamwork
Renewing the organization structure to facilitate
project type organization
Renewing the organization structure to facilitate 0.910
strategic partnerships and long-term business
collaborations
Nonprofit organization’s performance
The prospect of our organization is good 0.734
The satisfaction of our service object is high 0.844
Our employees are satisfied with the current busi- 0.798
ness model
The coordination is high among our employees 0.926
Our employees are satisfied with the organization 0.810
Our employees are satisfied with participating 0.928
organization

Table 4. Correlation coefficients.
Factors AVE CR 1 2 3 4
Product innovation 0.61 0.89 (0.78)
Process innovation 0.54 0.85 0.114 (0.74)
Marketing innovation 0.61 0.88 0.325 0.320 (0.78)
Organization innovation 0.65 0.92 0.053 0.030 0.180 (0.81)
Nonprofit performance 0.71 0.94 0.214 0.470 0.328 0.370 (0.84)
Note. Correlation is significant at the 0.01 level (two-tailed).
Correlation is significant at the 0.05 level (two-tailed). AVE, average
variance extracted. Discriminant validity is presented in bracket parallel
to correlation values.
Table 5. Goodness-of-fit indices.
Models Chisq/df GFI AGFI CFI TLI NFI RMR RMSEA
Measurement model 1.485 0.90 0.88 0.97 0.97 0.92 0.009 0.040
Structural model 1.628 0.88 0.86 0.96 .96 0.91 0.029 0.045
Acceptable range 1–3 >0.90>0.80>0.95>0.90>0.90<0.09 <0.08
Note. There is not agreeable values of good model fitness. However,
researchers used different criteria suggested in prior literature. The pre-
sent study followed the criteria suggested by Hu and Bentler (1999)
and Hair et al. (2010).
sufficient average variance explained (AVE)
(Fornell & Larcker, 1981).
Discriminant validity is calculated by taking
square root of AVE. The value has recommended
to be above 0.70 indicates adequate discriminant
validity (Fornell & Larcker, 1981). In the present
study, all the constructs have values above 0.70
and thus supported discriminant validity (see
Table 4). In addition, the other criterion suggests
that the discriminant validity will be higher for
the specific construct than the correlation values
of the construct with other constructs in the
model (Fornell & Larcker, 1981; Hair
et al., 2010).
Composite reliability
Composite reliability measures the internal consist-
ency of the factors. Composite reliability is deemed
like Cronbach’s Alpha, however, Cronbach’s Alpha
is traditional and more general (Fornell & Larcker,
1981). The current study reveals all the factors
have reliability values >0.70 (see Table 4). It has
recommended that the value above 0.70 indicates
good composite reliability (Fornell & Larcker,
1981; Nunnally & Bernstein, 1994). Thus, all the
criteria for measurement model met.
Correlation
This study performed the Pearson Correlation
analysis in SPSS and the results are presented in
JOURNAL OF SOCIAL SERVICE RESEARCH 9
Table 4. The Correlation provides early support
5 to the proposed hypothesis of the study. The
results indicate that there is significant positive
relationship between product innovation and
nonprofit performance (r ¼ 0.214, p < 0.01), sig-
nificant positive relationship between process
innovation and nonprofit performance (r ¼ 0.470,
p < 0.01), significant positive relationship between
marketing innovation and nonprofit performance
(r ¼ 0.328, p < 0.01) and also significant positive
relationship between organization innovation and
nonprofit performance (r ¼ 0.370, p < 0.01). In
addition, the correlation coefficients indicated
that there in multicollinearity issues in the study
as all the correlation values are <0.80 (Anwar,
Khan, & Khan, 2018).
Structural model
In order to test the hypothesis, structural model
was performed in AMOS (see Figure 2). The
results provided good model fitness (see Table 5)
as the value of chisq/df ¼1.628 shows well fits
model because the value is <3 suggested by (Hair
et al., 2010; Hu & Bentler, 1999). The values of
GFI ¼0.88, AGFI ¼0.86, CFI ¼0.96, TLI ¼0.96,
and NFI ¼0.91 indicate good model fit recom-
mend by (Hair et al., 2010; Hu & Bentler, 1999).
RMR ¼0.029 and RMSEA ¼0.045 also supported
the criteria of good model fitness recommended
by (Hair et al., 2010; Hu & Bentler, 1999) all the
items were significantly loaded (p < 0.001) on the
respective constructs.
The results (see Table 6) indicate that product
innovation has insignificant positive influence on
the performance of NPOs (b ¼ 0.078, p > 0.05).
Thus, H1 of the study was not supported.
Process innovation has significant positive influ-
ence on the performance of NPOs (b ¼ 0.217,
p < 0.05) which supported H2 of the study.
Marketing innovation has insignificant influence
on the performance of NPOs (b ¼ 0.088,
p > 0.05) and did not support H3 of the study.
Organization innovation has significant positive
influence on the performance of NPOs
(b ¼ 0.186, p < 0.05) that supported H4 of
the study.
In addition, age of firms has insignificant
impact on the performance of NPOs (b ¼ 0.006,
10 M. ANWAR ET AL.

Figure 2. Structural model.

Table 6. Hypothesis testing. variables including the size of firm and age of
Dependent variable Independent variable Estimate SE CR p firms. Producing a good model fit, the results
Nonprofit performance Product innovation 0.078 0.0471.6720.095 indicated that age has insignificant, while size has
Nonprofit performance Process innovation 0.217 0.0484.5190.000
Nonprofit performance Marketing innovation 0.088 0.0521.7090.087 significant influence on the performance of
Nonprofit performance Organization innovation 0.186 0.0473.9300.000 NPOs. In addition, group differences analysis was
performed in AMOS to test if there is significant
p > 0.05) and size of the firms has significant difference between executives and other manag-
influence on the performance of NPOs ers’ responses. Separate groups were created for
(b ¼ 0.178, p < 0.05). executives (test 1) and for managers (test 2).
The R2 value indicates that the factors bring Finally, the results of managers were compared
53% variance in the performance of NPOs in the with those of executives. There was a bit of dif-
presence of age and size of the firms as control ference between the two but it was too small to
be considered significant.
variable. It can be considered a good variance
To explore more valid insights, linear
which explained by the factors.
regression analysis was performed in SPSS (see
Table 7). The results indicated a significant
model fit. Moreover, there was significant simi-
Robustness tests
larly between the results of SEM and regression
In order to ensure the validity of the results, this analysis. Thus, it can be argued that these
study performed several robustness tests. This robustness tests ensured the validity of the
article tested a separate model for control model in this article.

Table 7. Regression results.
Unstandardized coefficients
Model B Std. Error
1 (Constant) 2.279 0.055
Size 0.205 0.012
Age 0.019 0.018
2 (Constant) 0.517 0.215
Size 0.157 0.012
Age 0.004 0.016
Product innovation 0.085 0.043
Process innovation 0.254 0.043
Marketing innovation 0.092 0.047
Org. innovation 0.214 0.044
Discussion
There are some reasonable arguments behind the
adoption of innovation in the context of product,
process, marketing, and organization structure.
However, the implementation of innovation may
be different between profit and NPOs. For
instance, unlike profit organizations, which are
strongly affected by competitive markets because
they totally focus on products and services that
should be offered to customers for earning pur-
pose (Hassan et al., 2013; Maier et al., 2016). This
article reveals that product innovation does not
significantly influence the performance of NPOs.
Consistent with Darroch (2005), who argued the
same results that product innovation does not
have a significant influence on nonprofit perform-
ance. Ergo, this race is not necessary for NPOs
because they are not totally dependent on market
conditions. Based on their nature, NPOs serve
communities and societies in the context of health,
education, infrastructure and social needs to meet
the organization objectives (Anheier, 2005). Unlike
Shin, Ge, and Qin (2017), who claimed that NPOs
are now more business oriented and engaged in
innovation activities to gain superior performance.
In fact, NPOs’ performance is not significantly
allied to product development and market compe-
tition because novel products approaches are
adopted mainly for the improvement of financial
performance (Liao, Lin, & Lin, 2016).
The findings of this manuscript indicate pro-
cess innovation is the significant driver to
improve NPOs’ performance in the emerging
economy Pakistan. Our findings strongly support
Zarei, Zarei, and Ghapanchi (2017) who demon-
strated that process improvement is essential for
NPOs in order to gain effectiveness and high per-
formance. In fact, process improvement and
JOURNAL OF SOCIAL SERVICE RESEARCH 11
Standardized coefficients
Beta t Sig.
41.638 0.000
0.698 17.115 0.000
0.045 1.107 0.269
2.399 0.017
0.535 13.095 0.000
0.010 0.273 0.785
0.077 1.836 0.067
0.240 5.915 0.000
0.080 1.942 0.053
0.189 4.908 0.000
innovativeness can be enhanced through techno-
logical innovation which is crucial for the high
performance of NPOs (Jaskyte, 2012). Our find-
ings are in line with Alshammari et al. (2014),
who argued that process innovation is a signifi-
cant driver to increase NPOs’ performance.
Additionally, McDonald (2007) argues that
innovation process facilitates NPOs to achieve
their mission and success in practical work.
This study scrutinized that marketing innov-
ation does not have a significant influence on
NPOs’ performance. It reveals that NPOs work-
ing in Pakistan are engaged in social welfare.
Unlike prior studies where it has been suggested
that NPOs are now shifting toward business prac-
tices and are concerned with markets changes
and demands (e.g., Choi, 2016; Lurtz & Kreutzer,
2017; Maier et al., 2016; McDonald, 2007), this
study reveals that the performance of NPOs is
not significantly influenced by marketing innov-
ation. They are still using intensified strategies
and implement adequate policies to meet the
organization and community’s needs (Macedo &
Carlos Pinho, 2006). More precisely, this article
reveals that Pakistani NPOs are not totally
dependent on products and services, thus their
performance is not significantly influenced by
market innovation and competition.
We found that organization innovation has a
significant positive influence on NPOs’ perform-
ance. For instance, Perrini and Vurro (2006)
argued that companies and NPOs steadily follow
innovation regardless of their nature of industry
to improve services, to solve the complex prob-
lems and to reduce poverty. Similarly, our findings
favors Winand and Anagnostopoulos (2017) who
proved that organization innovation is crucial for
the success and competitiveness of NPOs.
12 M. ANWAR ET AL.
To summarize, this study reveals that product
innovation and marketing innovation have insignifi-
cant positive influence on nonprofit performance
while process and organization innovation signifi-
cantly improve the performance of NPOs. Since the
aim of a NPO is to help communities regarding
health, education and poverty alleviation still impli-
cated in the emerging market Pakistan; this study
demonstrates the importance of process and organ-
ization innovation similar to profit organization.
Conclusion
Innovation has become a core driver for success
and survival of organizations regardless of their size
and nature. This study examined the importance of
product innovation, process innovation, marketing
innovation, and organization innovation in the
performance of NPOs. Using data from 309 NPOs
and by applying SEM in AMOS.21, the results
indicate that product innovation and marketing
innovation have insignificant positive influence on
NPOs’ performance while process innovation and
organization innovation have significant positive
influence on the performance of NPOs.
The present study contributes to the existence
literature of NPOs performance and innovation
theory (Schumpeter) through empirical evidences
collected from an emerging market. In addition,
this study covered the innovative practices in
NPOs that have been ignored in emerging mar-
kets. Prevailing literature has raised the question
“Are NPOs becoming profit organization?” In this
prospective, theoretical arguments have claimed
that pressure from external environment, competi-
tion, lower support and decline in donations by
governments have now compelled NPOs to sell
products and services to increase revenue. This
study tried to answer the tantalizing and elusive
question by analyzing empirical evidence collected
from NPOs operating in Pakistan’s emerging
economy. The findings indicate that not all the
NGOs are looking for improvement in revenues
through selling products in emerging markets.
NPOs still serve communities and implement pro-
cess and organization innovations to meet their
respective objectives and goals. NPOs are not
business oriented as their performance is not sig-
nificantly influenced by market and product
innovation. The findings of the study reflect that
NPOs in the emerging market are still relying on
donations and support from government and
other sponsoring bodies to serve communities
rather than totally focus on business activities.
This study gives signal to potential researchers and
scholars to undertake more similar studies to
explore this field in greater depth.
Practical implications
There is no doubt that competitive environment
and dynamic markets have challenged the survival
of every kind of organizations. Thus organizations
look for unique strategies and innovativeness to
respond to the external changes. However, the
performance of NPOs can be influenced by differ-
ent aspects unlike profit based organizations. In
this prospective, this study suggests several prac-
tical implications that may be of value for execu-
tives, senior managers and policy makers of the
NPOs. First, this study shows that product innov-
ation and marketing innovation have insignificant
influence on nonprofit performance while the pro-
cess innovation and organization innovation have
significant impact on the performance of NPO.
Thus, NPOs operating in the emerging market
can benefit from paying more attention to process
innovation followed by organization innovation. It
is understandable that these two types of the
innovation work as key drivers for the improve-
ment of performance because these innovations
have profound consequences for the organization’s
structure and processes. NPOs can implement new
practices to improve innovation. Meanwhile, prod-
ucts innovation and marketing innovations should
not be ignored specially among organizations that
do have some commercial activities. Because prod-
uct innovation and marketing innovation work
jointly to deliver suitable products and services to
customers and communities.
This study delivers an indirect message for gov-
ernmental and other philanthropic organizations.
Since our study clearly indicates that a big major-
ity of NPOs do not rely on commercial activities
to augment their revenues, they need greater
support from donors and supporters in order to
survive and continue to serve communities. An
interesting aspect of this article is for government

to think about the role of innovation in the
NPOs. To put it into another way, responsible
authorities can either facilitate NPOs in term of
innovation or can build effective policies for bet-
ter operation of the service organizations.
Limitations and future research
The study has several limitations that can be
addressed in future research. For example, this
study was conducted in the emerging market
Pakistan and measured only the core dimensions
of innovation toward NPOs’ performance. Future
researchers are encouraged to conduct studies in
other emerging markets or compare the import-
ance of innovation between NPOs operating in
emerging and developed markets as well as
between profit and nonprofit based firms. In add-
ition, possible moderator(s) and mediator(s) can
be tested between innovation and NPOs to gain
more meaningful insights into this very important
area. For instance, innovation in different envir-
onmental settings can be tested toward perform-
ance. Additionally, Chen et al. (2017) suggested
that absorptive capacity can mediate the relation-
ship between innovation and NPOs performance.
We therefore suggest that the mediating role of
absorptive capacity can be checked between each
type of innovation and NPOs performance.
Additionally, as pointed out by Anwar (2018),
this is the era of business model innovation, but
the role of business model innovation has been
ignored in NPOs which calls for future research.
In future research, it is suggested to conduct in-
depth interview with top management team of
NPOs to explore more beneficial findings.
Disclosure statement
No potential conflict of interest was reported by the authors.
ORCID
Muhammad Anwar http://orcid.org/0000-0002-
2685-4747
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