Journal of Organizational Change Management

Organizational network and strategic business performance: does organizational flexibility and
entrepreneurial orientation really matter?
Zahid Yousaf, Abdul Majid,
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Zahid Yousaf, Abdul Majid, "Organizational network and strategic business performance: does organizational flexibility
and entrepreneurial orientation really matter?", Journal of Organizational Change Management, https://doi.org/10.1108/
JOCM-12-2016-0298
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 Organizational network and strategic business performance: does organizational flexibility
and entrepreneurial orientation really matter?

Abstract

Purpose:

This paper aims to address the key issues how organizational networks influence the strategic
business performance through the mediating role of organizational flexibility, and the
moderating role of entrepreneurial orientation. Contextualizing small and medium enterprises in
developing countries we have developed and tested a theoretical model of strategic business
performance to provide a framework for analyzing its major antecedents.
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Design/Methodology/Approach:

This research used a quantitative approach with cross-sectional data. We used correlation,
regression and Baron and Kenny Approach (Causal Step Approach) for analyzing the data
collected from 737 CEOs/MDs/Owners of different small and medium enterprises to test the
theoretical model developed for this study.

Findings:

Findings revealed that organizational flexibility mediates the relationship between organizational
network and strategic business performance. Furthermore, stronger entrepreneurial orientation
strengthens the relationship between organizational flexibility and strategic business
performance.

Originality/Value:

This study contributes in two ways; first, it provides empirical evidences that how to flourish the
mechanism of strategic business performance in SMEs. Second, this work contributes to
understand the effects of organizational networks, flexibility, and entrepreneurial orientation on
strategic business performance.

Keywords: Strategic business performance, Organizational Networks, Organizational

Flexibility, Entrepreneurial Orientation, SMEs

1
 1 Introduction

In current decade, considerable research attention has been paid to strategic business
performance (SBP) of large enterprises (Gelhard et al., 2016). However, the debate over the
achievement of SBP contextualizing SMEs have largely been ignored so far (Chung, 2011). The
debate on the factors influencing SBP is dominated by the perspective of larger enterprises,
whereas, the perspective of small enterprises remained unexplored. In the available literature,
there is a disarray among researchers about the key factors influencing SBP and the theoretical
arguments backing these factors (Green et al., 2008). The fundamental work on SBP highlighted
various domains and factors effecting SBP, some of these factors include: organizational
learning (Chung et al., 2015), strategies relating to customer, inventory, finance, promotion
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marketing etc. (Kim et al., 2008), response to competitors (Chung, 2011), strategic alignment
(Yousaf and Majid, 2016) and dynamic capabilities (Gelhard et al., 2016). In addition to these
factors, the most promising factor which has an influential impact on SBP is the organisational
ability to adapt changes i.e. organizational flexibility (Verdu and Gomez-Graz 2009), together
with proactive consideration of organizational networks (Lans, Blok and Gulikers, 2015).
Organizational network consists of a set of nodes and relationships which built the pattern of
relations among individuals, groups or organizations (Rasmussen, Mose and Wright, 2015). On
the other hand, organizational flexibility is a mechanism of adaptation under dynamic situation
(Volberda, 1996).

There is a lack of empirical evidence that how networks improve organization’s

flexibility to perform strategically (Lin and Lin, 2016). Therefore, there is a need to understand
how organizations especially SMEs perform in a strategic way. To address this gap, this study
considers whether the likelihood of SBP increases to the extent that firms are flexible and have
strong network ties. Organizational flexibility is believed to stimulate growth and performance of
an enterprise (Nadkarni and Narayanan, 2007) and has an influential role for explaining SBP
(Buzacott, 1999; De Groote, 1994). Such organizational flexibility is attainable through
organizational networks (Borgatti and Foster, 2003; Nadkarni and Narayanan, 2007; Symon,
2000). Organizational networks make enterprises more dynamic, flexible in nature and
independent from hierarchical structures, hence, networks are increasingly important to develop
flexible organization for attaining SBP (Borgatti and Foster, 2003; Kale, Dyer and Singh, 2002).

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 This research also explores the moderating role of entrepreneurial orientation (EO) in the
relations between organizational flexibility and SBP. entrepreneurial orientation offers alertness
about the up-coming opportunities; subsequently, exploitation strengthens the competitive
positions of SMEs (Semrau, Ambos and Kraus 2016). Previously, researchers have discussed the
direct impact of EO on performance (See the work of Martin, and Javalgi 2016, Walter et al.,
2006). The research on EO has advanced considerably, where the largest stream of research
examines the implications of EO directly under different environments (Miller, 2011). But there
is a growing need to discuss the moderating impact of EO in the relation between organizational
flexibility and SBP, particularly in developing countries where the entrances and exits of SMEs
occur simultaneously without any strategic vision. Hence, we consider the EO as moderator for
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exploring more attractive research avenue for entrepreneurship researchers.

The purposes of the current study are to conclude: how do organizational networks affect
organizational flexibility which in turn enhances SBP? To what extent the effect of
organizational flexibility on SBP is to be moderated by the entrepreneurial orientation. In-line
with these objectives, this study contributes theoretically in four ways. First, this study develops
SBP model for SMEs contextualizing developing countries. Second, this study expends the scope
of organizational networks by offering its linkage with organizational flexibility to ensure SBP.
Third, this study opens the more brighten dimensions of EO by testing its moderating role.
Fourth, contextualizing SMEs this study provides a comprehensive scale for SBP in the light of
relevant literature. This research also has practical implications for managers and suggests to
adapt flexible strategies by developing network ties to achieve the targets of SBP. In order to
achieve the purposes, the study has been divided into different sections. In the next section,
important literature on different constructs has been discussed. The next section discusses the
methods and data sources. The subsequent sections describe the data and present the results of
analysis, conclusion, recommendations and policy implications.

2 Literature Review: Theoretical perspective and hypotheses development

2.1 Organizational networks and strategic business performance

Organizational network can be defined in different ways. It is the pattern of relations among
individuals, groups or organizations (Aldrich et al., 1989; Rasmussen et al., 2015); set of nodes

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 and relationships which connect them (Lechner and Dowling, 2003); informal collaboration
(Kreiner and Schultz, 1993); relationships based on mutual benefit, trust, and reciprocity
(Mitchell et al., 2016).

In previous studies, both positive and negative aspects of organizational networks have
been discussed. For example, Hakansson and Ford (2002) have strong arguments on the negative
dimensions of organizational networks, that organizations in network can’t act independently
because they utilize shared experience and resources that are built through previous coordination.
Koka and Prescott (2002) asserted that organizational networks grounds for building non-
redundant relationships that provide diverse information at a cost to efficiency and exploitation
of firms’ performance. Inkpen and Tsang (2005) argued that network’s effect on organizational
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outcomes depend upon the nature of the context and the level of knowledge transferred through
these networks and it may affect adversely the overall performance if such knowledge is
harmful.

However, in the previous literature, the positive effects of networks are discussed more
prominently than its negative effects, therefore, the organizational network component and its
significant importance for effective strategic business performance is focused in this study.
Available literature indicates several benefits that firms may enjoy when they are engaged in
networks such as start-up innovation (Huang, Lai and Lo, 2012), business growth (Zhao, Frese
and Giardini, 2010), effective decision-making (Owen-Smith, Cotton-Nessler and Buhr 2015),
opportunity recognition (Song et al., 2017) competitiveness and organizational performance
(Lechner, and Dowling, 2003). Despite these benefits, SBP is an attractive and long lasting
outcome of organizational networks (Chung el al., 2015).

Strategic business performance (SBP) represent a firm's performance and its competitive
position related to key competitors in critical areas like gaining a foothold in the industry,
increasing firm’s awareness and response to competitive pressure or challenges produced by
competitors (Chung, 2011). SBP represent how firms achieve different strategies like;
merchandising, distribution and supplier networks, customer service, marketing, financial and
promotional strategies (Kim et al., 2008). The targets of SBP are achieved by the agreement on
performance goals, the allocation and definition of resource priorities, informing managers to
review or to maintain the current policy or plans to meet these goals strategically (Murray,

4
 Kotabe and Wildt, 1995). As compared to large enterprises, SMEs are inexperienced to think
strategically due to their short operational lives; hence SMEs need strong networks for attaining
contemporary knowledge and continuous performance improvement (Walter el al., 2006; Yasir
and Majid, 2017). The general presumptions also assert that building organizational network
reduces the associated costs through shared knowledge for achieving SBP (Chung, 2011).

Organizational networks help an enterprise to successfully pursue SBP for several

reasons (Lans, Blok and Gulikers, 2015). First, an enterprise can be exposed to new ideas and
projects that reside with its partners who are enriched with various resources (Dyer, and Singh,
1998). These new ideas of partners encourage the divergent thinking and creative solutions
required for strategic business performance (Borgatti and Foster, 2003). Second, due to
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coordination availabilities in the network, the focal enterprise can utilize more opportunities to
combine the variety of skills of other firms (Song et al., 2017). Considering these factors,
following hypothesis is proposed:

Hypothesis-1 Organizational network has a positive association with strategic business

performance.

2.2 Association of organizational networks and organizational flexibility

Organizational networks provide synergistic effects in coordinated activities that enable them to
adapt the required changes with the help of complementary relationships (Borgatti and Foster,
2003). Organizational network in term of coordination and relational skill improves
organizational flexibility through its capacity to respond positively to change (Walter el al.,
2006). Although available literature shows many definitions of flexibility, however for finding
the operative facet of the concept of organizational flexibility, just few of them are highlighted.

Organizational flexibility is a capacity to utilize and re-utilize the resources and

capacities or the capacity to manage and change the organizational characteristics (Volberda,
1996). It is the power of containing, receiving, experiencing or producing aptitude to adapt,
change and react along with suffering time, cost, effort or action (Parthasarthy and Sethi, 1992;
Upton, 1994). Moreover, flexible firms experience less restriction on their ways to obtain support
for sustainable practices from network partners and leverage network relationships (Mitchell et
al., 2016).

5
 Organizational network establishes a mechanism of cooperation among organizations to
reformulate and implement common strategies in response to environmental change, hence,
improve the agility, flexibility and adaptability (Lans et al., 2015). Organizational networks
favour the competitiveness of organizations by enabling them to become more flexible through
minimizing additional costs; sharing organizational resources and updating knowledge (Walter et
al., 2006). Network act as a facilitator for organizations embedded in it for developing and
maintaining cooperativeness (Rasmussen et al., 2015). Such cooperativeness allows firms to
move ahead in a more flexible manner (Yousaf and Majid, 2016). This study builds an argument
that organizational flexibility being the ability to prepare and manage proactively for an
uncertain environment largely depends on the level of organizational networks. Therefore, we
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focus on the positive association between organizational network and organizational flexibility.
This discussion leads the basis for the development of following hypothesis.

Hypothesis-2 Organizational network has a positive association with organizational flexibility.

2.3 Association of organizational flexibility and strategic business performance

Organizational flexibility is a primary mean that enables firms to acquire necessary changes for
shaping skills, advancing knowledge and improving behaviour to achieve strategic goals
(Vecchiato, 2015). Flexible organizations can recombine firm’s internal as well as external
resources for accomplishing long range objectives while achieving SBP (Kozjek and Ferjan,
2015). Flexibility in structure and strategies provides strategic information which produces a
positive change in organizational culture, systems and processes (Volberda, 1996). Such positive
change can increase organization’s overall SBP (Chung, 2011). Organizational flexibility being
ability to adaptiveness to changes whether predicted or unpredicted not only manages the
diversity of complex environment, but also push forward an enterprise into new-fangled
paradigm that brings competitiveness and superior performance (De Groote, 1994; Sommer,
2003).

Enterprises with flexible operations attain SBP earlier than those enterprises which have
stiff and rigid operational mechanism (Verdu and Gomez-Graz, 2009; Kim et al., 2008).
Organizational flexibility is a pertinent mean by which firms enhance their ability to alter its
strategic actions in response to key competitors and these alterations or flexibilities help a firm to
ensure SBP (Bryson et al., 1993; Parthasarthy and Sethi, 1992). Flexible organizational

6
 mechanism can control complexity, minimize uncertainty, and offer safeguard for firm’s
commitments to perform in a strategic way (Bryson et al., 1993). Flexible enterprises can
efficiently and effectively manage the overall risks that exist in a complex and turbulent
environment and provide basis for SBP (Buzacott, 1999; Chung, 2015). In the context of current
research, it is proposed that flexible enterprises are more enthusiastic and quick while attaining
strategic business performance as compared to non-flexible enterprises. Therefore,
organizational flexibility is positively associated with strategic business performance. This
discussion proposes the following hypothesis:

Hypothesis-3 Organizational flexibility has a positive association with strategic business

performance.
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2.4 Mediating role of organizational flexibility

Organizational flexibility being an outcome of organizational network constitutes the primary

mechanism through which SMEs can transform their strategies and structures for achieving SBP.
Previous studies also supported the positive relationship between organizational flexibility and
performance (Kozjek and Ferjan, 2015; Vecchiato, 2015), however, our attention is to check the
impact of organizational network on SBP through organizational flexibility.
Organizational flexibility as a mean of quick adaptations of required changes depends on
the firms’ interactions, associations and business contacts provided by organizational networks
(Bryson et al., 1993). Such associations and business relations offer deeper knowledge about
network partners and their key resources which determines overall SBP (Majid, Yasir and Yasir,
2017; Yousaf and Majid, 2016). Organizational networks may positively affect the firm’s
performance, but the attainment of SBP is tricky and complex and needs firm’s ability to change
or react with little penalty in time, effort, cost or performance which are attributes of organizational
flexibility (Gutierrez and Perez, 2010). Thus, organizational flexibility acts as a driver of organizational
network to achieve SBP. Enhanced level of organizational flexibility with frequent coordination
and relational skill are more enthusiastic to achieve SBP. Contextualizing SMEs, organizational
networks enhance the strategic options for consistent performance and improve organization’s
flexible behavior (Lin and Lin, 2016). Furthermore, organizational networks increase firm’s
ability to engage in synergetic efforts and ensure organizational flexibility (Walter et al., 2006;

7
 Kozjek and Ferjan, 2015). This organizational flexibility helps an enterprise to develop
competitive knowledge about key opportunities for attaining SBP and overcome confrontation
(Dyer and Singh, 1998; Vecchiato, 2015).
The mediating role of organizational flexibility thus implies that the development of
strong organizational network presents a key mechanism that underpins the conversion of
opportunities into SBP through increased level of organization’s flexibility. The relationship of
network and organizational flexibility is strong enough to make enterprises more energetic and
independent from hierarchical structures (Borgatti and Foster, 2003; Symon, 2000). Mitchell,
Schlegelmilch, and Mone (2016) acknowledged that organizational flexibility exploits explicit
opportunity through network (e.g. by information to share skills, costs, and access to one
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another’s markets). Enterprise must have a specific weapon to confirm their SBP, and networks
play meaningful role in providing this weapon by organizational flexibility (Dastmalchian and
Blyton, 1998).
Combining these preceding arguments, we argue that as pertinent means by which
organizational network enhances the mechanism of coordination and relations for SBP is by
enabling firms more flexible (Bryson et al., 1993; Vecchiato, 2015). Such relations help firms to
develop in-depth knowledge about the new ideas and potential opportunities and boost
organizational flexibility to lead SBP (Dyer and Singh, 1998; Majid et al., 2017). This discussion
leads to following hypothesis.

Hypothesis-4 Organizational flexibility mediates the relationship between the organizational

network and strategic business performance.

2.5 Moderation by Entrepreneurial orientation

Entrepreneurial orientation (EO) encompassing innovation, risk-taking and pro-activeness as the

subset of variables used to describe strategy making (Miller, 2011). However, Miller (2011)
acknowledged that entrepreneurial processes manifest differently in different contexts, e.g. risk
taking in the small firms; innovation in the high-tech company, and pro-activeness in an
“intrapreneurial” giant. Miller (2011) also appreciated the work of Lumpkin and Dess (1996) that
provided new variable ‘competitiveness aggressiveness’. Therefore, in this research, we follow
the work Le Roux and Bengesi, (2014) who suggested three dimensions of EO and used
competitiveness aggressiveness as a subset of EO instead of using innovativeness for deep

8
 understanding while analyzing small and medium enterprise. The three dimension of EO are:
risk-taking, competitive aggressiveness and pro-activeness. As the possibility of a moderating
effect of EO is consistent with a long traditional support for the theory and practice, this study
investigates the moderating impact of EO in the relation between organizational flexibility-SBP.

The EO (Le Roux and Bengesi, 2014) model has been applied to the interactional
approach while arguing that risk-taking, competitive aggressiveness and pro-activeness can
alleviate the influence of the flexibility on SBP. The process of taking higher risks eases the
influential impact of flexibility on strategic business performance by suggesting that this risk-
taking contributes for higher rewards and could generate new ideas (Song et al., 2017; Martin,
and Javalgi 2016). Pro-activeness of an enterprise being the first movers while introducing new
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products/services can provide easy mechanism to flexible firms for improving SBP (Covin and
Lumpkin, 2011; Linton and Kask, 2017; Semrau et al., 2016). Competitive aggressiveness boost
the positive impact of organizational flexibility on SBP by providing timely responses to key
competitors (Le Roux and Bengesi, 2014; Linton and Kask, 2017; Wales, 2016). Consequently,
SMEs with strong EO strengthens the relationship between organizational flexibility and SBP.
Based on these arguments we hypothesized that EO positively moderates the relationship of
organizational flexibility-SBP. Figure 1 presents our research model.

Hypothesis-5 Entrepreneurial orientation strengthens the relationship between organizational

flexibility and strategic business performance.

Insert Figure-1 here

3 Methodology

This study was conducted on small and medium enterprises. SMEs operating in the developing
countries provide valuable products and services to the economy. Therefore, with the aim of
identifying a more representative sample size the combined list was obtained from databases of;
Pakistan chamber of commerce, SMEDA (Small and Medium Enterprise Development
Authority) and online business dictionary. A criterion was developed to select a sample of 4580
manufacturing firms. In pre-developed criteria, there were three requirements to get selected.
First, firms must have complete address (i.e. postal and email), contacts details (owner’s detail

9
 and phone number) and organized office set up (registered office). Second, the firms should be
operating from last 5 years in the industry. Third, the firm should have fifty or more employees.

3.1 Data Collection

The process of data collection consists of sending questionnaires through postal mail (2600
questionnaires) and through email (1980 questionnaires) to the CEOs/owners of different small
and medium enterprises. The covering letter was attached with the questionnaire for explaining
the objectives and implications of the research. Out of 1980 questionnaires sent via emails 239
questionnaires were undelivered due to wrong email address, overloaded blockage or any other
error. Whereas, 311 questionnaires were bounced back through surface mail having the same
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confusion. Therefore, total questionnaires actually delivered to CEOs and Owners via email and
surface mail have reduced from 4580 to 4030. Final responses from both approaches were 986
questionnaires. However, 249 responses were incomplete and not suitable for analysis. Hence,
only 737 questionnaires were useable for analysis and de-facto response rate was 16.09%.

An extensive literature review regarding major constructs (Strategic business

performance, organizational networks, organizational flexibility and entrepreneurial orientation)
was conducted before developing the questionnaire. Initially the developed questionnaire was
pretested to thirty CEOs which highlighted some areas that require clarifications. The final
sample did not include these thirty responses. The questionnaire with a 7-point Likert scale
resulted in a final sample of 737 useable responses with a sampling error of ±5% and 95%
confidence level. The response rate was 16.09% seems low at first glance. However, same or less
response rates have been reported by previous researchers who conducted surveys relevant to top
management (See the work of Mishra and Suar 2010; Raza and Majid, 2016).

3.2 Operational measurements, reliability and validity

Scales are extremely important and play an imperative role in designing the survey instrument in
management research. Due to complexity of developing new scales of measurement, we have
used pre-tested scales from past empirical studies to ensure their validity and reliability. The
scales employed in this study were adapted from existing scales to suit this context. After
purification of all items through multiple iterations of confirmatory factor analysis, we reduced
the total number of items from 57 to 43. The measures were adapted by following the guiding

10
 principle set by Anderson and Gerbing (1988). All items of independent, moderating and
mediating variables were measured using seven points likert scales (1-Strongly disagree to 7-
Strongly agree). Items of dependent variable were gauged by the perception of management i.e.
how well an enterprise has performed to achieve its strategic objectives (1-Not Achieved at all to
7-Completely Achieved).

3.3 Measures

Dependent variable SBP (Strategic business performance) was measured through 17 items
covering its several sub-dimensions available in literature. 8 items ranged from SBP-1 to SBP-8
were used to measure how firm achieves its strategic goals like profitability, market share etc.
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These items were adapted from Cavusgil and Zou (1994). Whereas, 5 items ranged from SBP-9
to SBP-13 were used to measure how an organization has achieved its different marketing
strategies like merchandising, promotion, distribution and customer. These items were adapted
from the study of Kim et al. (2008). 4 items ranged from SBP-14 to SBP-17 were used to
measure organization’s comparative performance. These items were adapted from the study of
Murray at el. (1995).

Organizational network (Independent variable) was operationalized by using four sub-

dimensions of organizational networks: coordination, relational skill, partner knowledge and
internal communication. The 14-item scale to measure four dimensions of organizational
network was adapted from the work of Walter et al. (2006). The scale of mediating variable
organizational flexibility was measured through the 8-items scale adapted from the work
Gutierrez and Perez (2010), and Verdu and Gomez-Gras (2009). The moderating variable in this
study is an entrepreneurial orientation. Following three dimensions are slightly revised and used
to measure entrepreneurial orientation: competitive aggressiveness, pro-activeness, and risk-
taking. The three dimensions are measured using 4 questions adapted from the work of Le Roux
and Bengesi (2014). Literature shows that firm size and firm age may affect organizational
performance and usually used as control variables (See. Galbreath and Galvin, 2008; Orlitzky,
2001). Therefore, firm size and firm age are considered as control variables in this study. Firm
size was measured by number of full-time employees and firm age was measured by number of
years in business. The details of this research are presented Annexure-1.

11
 Constructs validation for this research was tested through content, convergent and
discriminant validity. Constructs used in this research have previously been checked and
implemented in various studies in different sectors; therefore, we assessed the content validity of
the constructs through review of literature. In addition to that, content validity has also been
verified with the detailed discussion with a panel of experts. Consequently, it is argued that this
study has a high degree of content validity of constructs. CFA was used to check convergent and
discriminant validity and found acceptable standard loadings (except 14 items which were
removed), and significant corresponding t-values (Goodness of Fit Index (GFI) = 0.967, AGFI =
0.910, Comparative Fit Index (CFI) = 0.981, Normed Fit Index (NFI) = 0.980, Incremental Fit
Index (IFI) = 0.981 and RMSEA = 0.05. CFA loadings was above 0.70 and AVE ranged from
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0.75 to 0.91. Thus, path coefficients from the latent constructs to their corresponding manifest
indicators were statistically significant. Discriminant validity was evaluated by making
constrained CFA model for each potential pair of latent construct and correlation between paired
constructs were fixed to 1.0. This was compared with the original un-constrained model with
freely estimated correlations among constructs. The χ2 differences of scales were found
significant with P < 0.001, which demonstrating discriminant validity. The squared root of AVE
of each construct was more than all the corresponding correlations, proving discriminant validity.
Thus, results of these analyses supported the validity and uni-dimensionality of the constructs
used in this research. Values of standardized loadings, AVE and CR are depicted in Table 1.

The data were collected from single informants i.e. CEOs/Owners; therefore, common
method bias may occur to inflate estimates among variables (Podsakoff and Organ, 1986).
Therefore, we used Harman’s one-factor test for examining the extent of the potential bias.
Results of the one factor analysis revealed 11 factors with eigenvalues greater than one, which
combined to account for 62% of total variance. Whereas, the first factor accounted for 21% of
the total variance. It did not account for a majority of the variance. Hence, results of Harman’s
test indicate that common method bias is not a major issue in this research (Podsakoff and
Organ, 1986).

Insert Table-1 here

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 4 Analysis and Results

Correlation and regression analysis was performed to check the relationship of strategic business
performance with organizational network through the mediating role of organizational flexibility.
Table 2 shows the result of mean, standard deviation, values of Cronbach Alpha and correlation.

Insert Table-2 here

The correlation coefficients within the dimensions of organizational network, organizational

flexibility, entrepreneurial orientation and SBP were all significantly correlated (P value < .001)
and consistent with those in the previous research studies. Thus, the correlations are generally
supportive of our theory. The mean values of control variables “No of Employees” and
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“Business Age” are 1.24 and 3.05 respectively.

Variance inflation factors (VIF) were used to test multi-collinearity. VIF scores are
consistently below the cut-off value of 10.0 in all the models, which indicates that multi-
collinearity is not a major problem in our analysis. To check the hypothesis 1, 2, 3 and 4 we used
linear regression, the results are presented in Table 3. H1 proposed that organizational network
has a positive association with SBP (Beta value = .302, P < .000). Results proved that
organizations with strong networks attain strategic business performance H1 is accepted. H2
proposed that organizational network has a positive association with organizational flexibility.
Table 3 shows that H2 is also accepted (Beta value = .507. P < .000). H3 proposed that
organizational flexibility has a positive association with SBP. The results of H3 also proved that
flexible organizations are able to achieve SBP (Beta value = .432, P <.000).
To check the mediating role of organizational flexibility in the relation between
organizational network and SBP, we followed the instructions of Baron and Kenney (1986)
approach. According to this approach, four steps should be analyzed; 1) independent variable
should be significantly related to dependent variable; 2) independent variable should be
significantly related to mediator; 3) mediator and dependent variable should be significantly
related; 4) the relationship between independent variable and dependent variable must be non-
significant or reduced majorly when the mediator is included in the model. Table 3 represents
that step 1 to step 4 (As each step has been checked through hypotheses). The final step 4 or the
hypothesis 4 proposed that organizational flexibility mediates the relationship between

13
 organizational network and SBP. Table 3 represents that when mediator organizational flexibility
is included in the model as a mediator, the effect of organizational networks on strategic business
performance becomes non-significant and reduced from 0.302 (P = 0.000) to 0.056 (P =
.124).Therefore, H4 is supported by the results and it is suggested that organizational flexibility
fully mediates the relationship between the organizational networks and strategic business
performance. Figure 2 also depicts how organizational flexibility acts as mediator.

Insert Table-3 here

Insert Figure 2 here

4.1 Moderating role of entrepreneurial orientation

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To test the hypothesis 5, that the strategic business performance is a function of multiple factors,
and more specifically whether entrepreneurial orientation moderates the relationship between
strategic business performance and organizational flexibility; a hierarchical multiple regression
analysis was conducted. Table 4 presents the results of Model-1, Model-2 and Model-3. Model-1
shows results of control variables. To check moderating role of EO, in first step (model 2),
variables i.e. organizational flexibility and entrepreneurial orientation were included. These
variables accounted for a significant amount of variance in strategic business performance, R2 =
.258, p < .001(see Table 4). To avoid potentially problematic high multicollinearity with the
interaction term, the variables were centered and an interaction term is used between
organizational flexibility and entrepreneurial orientation (Aiken and West, 1991). Next, in
‘Model 3’ the interaction term between organizational flexibility and entrepreneurial orientation
was added to the regression model, which accounted for a significant proportion of the variance
in SBP (β = 0.054, p <0.001) hence, H5 is accepted.

Insert Table-4 here

Fig. 3, shows that organizational flexibility had a stronger and positive effect on SBP when the
entrepreneurial orientation support was high (β value = 0.336, p value <0.001) rather than low (β
value = 0.140, p value <0.001), in line with hypothesis 5. Hence it is proved that entrepreneurial
orientation strengthens the relationship of organizational flexibility-SBP.

14
 Insert Figure 3 here

5 Discussion and Conclusion

5.1 Theoretical implication

Our study carries numerous theoretical contributions. First, this study developed and empirically
tested ‘SBP-Model’ to contributes to the theory by offering the directions to achieve SBP
through organizational networks, flexibility and EO contextualizing SMEs of the developing
countries, such issue has not been discussed previously. This research adds to the theory by
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focusing that flexible firms are in a better position to achieve the targets of strategic business
performance; whereas, organizational flexibility is the outcome of organizational networks.

Second, this study extends the scope of organizational networks by indicating

organizational flexibility as a driver to achieve SBP. This study adds to literatures in a way to
focus on the mediating role of organizational flexibility between organizational networks and
SBP. Therefore, this study contributes to explore organizational flexibility is the major outcome
of organizational networks to lead SBP.

Third, this study opens the new corridors for change management researchers while
explaining the moderating role of entrepreneurial orientation (EO). The extent to which
organizational flexibility affects SBP could be easier when EO moderates in term of competitive
aggressiveness, risk taking and pro-activeness. The moderately significant impact of EO in the
relationship between organizational flexibility-SBP signals that EO can preserve firm’s
existence; make-sure pro-activeness through launching new products/services, attract customers
and improve the organization’s goodwill in a long run (Pearce et al., 2010). Those enterprises
which are aggressive to competitors’ action have the ability to get advantages of first movers as
high risk takers (Le Roux and Bengesi, 2014). Such pro-activeness of an enterprise strengthens
the relationship of SBP and flexibility (Deb and Wiklund, 2017).

Finally, we specify the nature of the strategic business performance and developed new
SBP construct covering its maximum dimension available in the literature. The distinct we make
is that we have used a holistic approach to measure the construct of SBP by taking the guidelines

15
 of different studies. In measuring SBP we have considered different dimension like achievement
of strategic goals (Cavusgil and Zou, 1994; Chung et al., 2015), implementation of key strategies
(Kim at el., 2008), and comparative performance (Murray at el., 1995).

5.2 Practical implications

This study also suggests various implications for managers. First, on the basis of our suggested
SBP-Model it is recommended to top management of SMEs that they must focus to build
flexible strategies and structures through strong networks. SMEs have to face myriad of hurdles
due to shorter operational lives, lack of financial resources and competitor’s pressures (Raza and
Majid, 2016), in such cruelty, the organizational networks can provide many opportunities to
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vision sustainable performance. This study recommends that management may perceive
numerous social situations through network relations; respond to extensive range of information
and social stimulus from outside and inside the organization (Walter et al., 2006). This study
directs top management of SMEs to focus on relational skills through organizational networks
for speeding up the mechanism of organizational flexibility to ensure SBP (Owen-Smith et al.,
2015). Therefore, it is strongly recommended to SMEs to optimize their level of flexibility by
contacting other network partners for building up strong relational networks accessing strategic
performance (Song et al., 2017).

Secondly, this study opens the bright corridors of organizational networks and
recommends that the management in practice shouldn’t afraid from the dark sides of
organizational networks as previously projected by Koka and Prescott(2002); Inkpen and
Tsang(2005); Hakansson and Ford(2002)and must consider the positive impacts of
organizational networks on performance as highlighted and discussed by Lans et al., (2015) and
Song et al., (2017). Furthermore, we suggest top managers that networks cater an entrance ticket
that allows for higher impacts of development through organizational flexibility in the context of
SMEs. Management must establish networks to make SMEs more flexible so that can improve
existing potentials i.e. current growth in sales, profit attainment, realized competitive edges and
securing long term survival.

16
 Finally, this study recommends that the process of interplay how organizational
flexibility influence SBP of SMEs could be faster through pro-activeness, aggressive
competitiveness and risk taking i.e. the bright dimensions of EO.

5.3 Limitations and Future Research

Although current research offers interesting findings, few limitations should be noted. We used
single informant approach usually adopted in enterprise researches which could alleviate
potential problems. However, Harman’s One-factor test was conducted to check common
method bias, hence; it is assumed that a common source bias is not a major issue in this study.
Furthermore, we could not establish causality due to cross sectional data. The other major
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limitation of research in hand is that it analyzed only those SMEs which are working in
developing countries. This research offers numerous opportunities and directions for future
research.

Firstly, investors and other capitalists can be advised to analyze not only the networks,
but also their level of flexibility before making an investment decision. As our results proved that
organizational flexibility has a key influence on a wide variety of developmental measures and,
hence, should be more seriously considered. Secondly, despite the distinctive characteristics of
strategic business performance of SMEs, it could have some similarity with other high-tech
corporations, such as global large firms. The results of this study may be applicable for these
firms, although an empirical test of this proposition could be an exciting topic for further
research.

5.4 Conclusion

The current study based on the live experience of 737 CEOs/Owners of SMEs shows that
organizational network has the ability to make SMEs flexible in nature and improve it capacity
to accept the viability of markets and environmental complexity. The results of our study proved
that flexibility in SMEs procedures and practices confirms the basis of SBP. Additionally, this
relationship between organizational flexibility and SBP become faster when EO is involved. This
study offers SBP model for SMEs interlinking networks to SBP through organizational
flexibility along with the moderating role of EO. The larger counterparts are not in position to
ignore their long-range survival, but SMEs specially operating in developing nations are not able

17
 to maintain consistent performance. Therefore, the results of this study indicated that there is a
possibility for SMEs to perform in a strategic manner if they focus on strong patch-ups and
enhancing their level of flexibility.

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Biographies
Zahid Yousaf is Lecturer in Government College of Management Sciences, Mansehra-Pakistan.

He obtained M.Com from University of Peshawar Pakistan. He obtained his MS-Management

22
 Sciences from Hazara University, Pakistan. He is PhD scholar in Department of Management

Sciences Hazara University Mansehra. He is author of 8 publications in different Peer reviewed

research journals. He has also presented 3 research papers in international Conferences.

Dr. Abdul Majid is Provost in Hazara University Mansehra-Pakistan. He did his PhD from

University of Peshawar Pakistan. He did his post-doctoral research from University of Sheffield

UK. He wrote more than 40 papers in different Peer reviewed research journals and present

various papers in different international research conferences. He is a coordinator of PhD and

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MS program in Department of Management Sciences, Hazara University Pakistan.

23
 List of Figures

Figure-1 Strategic Business Performance Model

Figure-2 Mediating role of organizational flexibility

Figure-3 Moderating effect of entrepreneurial orientation in the relationship of

organizational flexibility and SBP
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Downloaded by INSEAD At 08:38 20 February 2018 (PT)
 5
4.5
Strategic Business Performance

4
3.5
Low EntOri
3
High EntOri
2.5
2
1.5
1
Low Org Network High Org Network
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Figure 3 Moderating effect of entrepreneurial orientation in the relationship of organizational

flexibility and SBP
 List of Tables

Table 1 Result of Standardized Loadings, CR & AVE

Table 2 Mean, SD, Alpha & Correlation

Table 3 Regression results for testing hypothesis 1, 2, 3 & 4

Table 4 Moderating role of Entrepreneurial Orientation

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 Table 1 Result of Standardized Loadings, CR & AVE
Measures Standardized Loadings CR AVE
Organizational Networks
ON1 0.81
ON2 0.86
ON3 0.83
ON4 0.79
ON5 0.80
ON6 0.79
ON7 0.87
0.96 0.75
ON8 0.78
ON9 0.76
ON10 0.79
ON11 0.89
ON12 0.88
ON13 0.81
ON14 0.82
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Organizational flexibility
OF1 0.83
OF2 0.77
OF3 0.84
OF4 0.79
0.93 0.77
OF5 0.86
OF6 0.77
OF7 0.81
OF8 0.80
Entrepreneurial Orientation
EO1 0.84
EO2 0.75
0.90 0.68
EO3 0.83
EO4 0.77
Strategic Business
Performance
SBP1 0.84
SBP2 0.75
SBP3 0.83
SBP4 0.86
SBP5 0.85
SBP6 0.88
SBP7 0.84
SBP8 0.75
SBP9 0.83 0.94 0.83
SBP10 0.83
SBP11 0.86
SBP12 0.84
SBP13 0.75
SBP14 0.83
SBP15 0.86
SBP16 0.77
SBP17 0.78
 Table 2: Mean, SD, Alpha & Correlation
Sr # Variables Alpha Mean SD 1 2 3 4
1 Organizational Networks 0.79 3.51 0.43 1
2 Organizational Flexibility 0.88 3.79 0.44 .348** 1
3 Entrepreneurial Orientation 0.81 3.67 0.65 .268** .702** 1
4 Strategic Business Performance 0.91 3.76 0.74 .188** .376** .503** 1
**. Correlation is significant at the 0.01 level (2-tailed).
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Table 3 Regression results for testing hypotheses 1, 2, 3 & 4

Hypotheses Details R F Β T Sig Remarks

1 Organizational network
StgBP 0.180 24.632 0.302 11.258 0.000 Accepted
2 Organizational network
Organizational Flexibility 0.350 100.99 0.507 9.089 0.000 Accepted
3 Organizational Flexibility
StgBP 0.376 121.07 0.432 14.823 0.000 Accepted
4 Organizational network + Organizational Flexibility
StgBP 0.380 61.836 0.056 1.542 0.124 Full Mediation
0.357 9.791
 Table 4 Moderating role of Entrepreneurial Orientation

Model-1 Model-2 Model-3

Factors and Research resumes B t-value B t-value B t-value
Firm Age -0.031 -0.815 0.005 0.158 0.015 0.448
Firm Size 0.049 1.291 0.119 3.647 0.135 4.083
Organizational Flexibility 0.344*** 8.231 0.336*** 8.14
Entrepreneurial Orientation 0.457*** 9.058 0.140*** 20.416
Organizational Flexibility x Entrepreneurial Orientation 0.054** 3.105
Model resumes
R 0.508*** 0.515**
∆R2 0.258*** 0.008**
R2 0.003 0.258*** 0.265**
F statistics 0.997 160.97*** 111.528**
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Note: Significance level ***P < 0.001, **P < 0.01. *P < 0.05, P < 0.1
 Downloaded by INSEAD At 08:38 20 February 2018 (PT)

Annexure-1
SR Items Source
Organizational Networks
1 Our firm analyzes what we would like and desire to achieve with which network-partner.
2 Our firm match the use of resources (e.g., personnel, finances) to the individual network relationship.
3 Our firm have knowledge about our network-partners’ goals, potentials and strategies.
4 Our firm judge in advance which possible network-partners to talk to about building up relationships.
5 Our firm has the ability to build good person al relationships with network-partners.
6 Our firm can put itself in our network-partners’ position .
7 Our firm can deal flexibly with our network-partners. (Walter, Auer, Ritter
8 Our firm usually solve problems constructively with our network partners. 2006)

9 Our firm knows about our network-partners’ customers and markets.

10 Our firm knows about network-partners’ procedures/product s/services in detail.
11 Our firm has knowledge about network-partners’ strengths and weaknesses.
12 Our firm knows about competitors’ potentials and strategies.
13 Our firm's communication is often across projects and subject areas.
14 In our firm managers and employees do give intensive feedback on each other.
Organizational flexibility
Our firm reformulate very quickly the strategies whenever required in response to market dynamism or the
1 competitors' strength.
Our firm has a range of strategic measures at our disposal to face the change when the environment conditions
2 change.
In our firm we can use machinery and/or technology of production of goods or of provision of services that allow (Gutierrez and Perez
3 to perform a high number of operations in a fast way and without incurring high expenses to change the tasks. (2010)
4 Our firm face high level of modifications over the products or services introduced every year.
Our firm has the capacity to offer new products or services (to widen the range) very
5 quick and easily (with relatively low costs) with the consequent changes in the production tasks.
6 Our firm makes advertising campaigns or promotions with the objective of influencing the consumers’ tastes.
Our firm applies horizontal extension of responsibilities like job enlargement for performing a broader repertoire
7 of activities (e.g. job rotation, increase interchangeability of positions) Verdu and Gomez
Our firm applies vertical extension of responsibilities like job enrichment for obtaining more decision-making Gras (2009)
8 authority over activities to be performed.
Entrepreneurial Orientation
1 Our firm is very aggressive in response to competitors’ actions and adopts a very competitive posture. (Le Roux et al.,
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2014)
Our firm is always the first to introduce products or services and has a tendency to be ahead of competitors while
2 introducing new ideas.
3 Our firm takes higher financia risks believing that these risks are worth taking for higher rewards
4 Our firm belives to pursue noval business ideas while well aware that some will fail.
Strategic Business Performance
1 Our firm has achieved strategic goals by gaining foothold in the market.
2 Our firm has achieved strategic goals by increase product/firm awareness.
3 Our firm has achieved strategic goals by responding to competitive pressure .
4 Our firm has achieved strategic goals by improving our firms market share. (Cavusgil and Zou,
1994)
5 Our firm has achieved strategic goals by increasing profitability.
6 Our firm has achieved strategic goals by expanding strategically to other industries.
7 Our firm has achieved strategic goal by responding to the enquiries from industry.
8 Our firm has achieved targets of average sales growth and profitability over the last five years.
9 Our firm has the ability to achieve its promotional strategies.
10 Our firm has the ability to achieve its marketing and merchandising strategies.
(Kim et al., 2008)
11 Our firm has the ability to achieve its financial and customer strategies.
12 Our firm has the ability to achieve its distribution strategies.
13 Our firm has the ability to achieve its supply network strategies.
Our firm has the ability to achieve strategic performance by increasing the market share relative to three largest
14 competitors.
Our firm has the ability to achieve strategic performance by increasing the sale growth rate relative to three largest
15 competitors. (Murray at el., 1995)

Our firm has the ability to achieve financial performance by increasing the return on sale relative to three largest
16 competitors.
Our firm has the ability to achieve financial performance by increasing the return on invetsment relative to three
17 largest competitors.