Firm performance of SMEs: the impact of social capital, strategic agility and strategic

flexibility

Literature review:
This chapter includes an in-depth review of the literature on the study variables employed in this

investigation. There follows a discussion of research findings related to social capital, strategic

renewal, strategic orientations and organizational ambidexterity in relation to the study variables.

Also highlighted are social capital, strategic renewal, strategic orientation, strategic flexibility,

strategic agility and organizational ambidexterity as well as their respective dimensions.

Social capital:

A firm's SC, according to Sanchez-Famoso et al. (2014), is an intangible resource derived from a

company's long-term goals and performance and a network of links. A firm's ability to maintain

a competitive advantage can be achieved through constant transformation and renewal by

considering the opportunities and threats in the environment and removing them by using

distinctive, unique, inimitable, and nonsubstitutable resources such as human and social capital,

which are not easily substituted (Barney, 1991). When it comes to environmental possibilities

and risks, it is critical for every company to manage and utilise its unique organisational

resources, such as the relationships built through its social networks, effectively (Shah et al.,

2019a; Klammer et al., 2017). A wide range of operationalizations and dimensions of SC were

accessible in the literature. Lee and Wu (2018) defined SC as a three-dimensional concept by

focusing on its structural, relational, and cognitive components. The way in which members

interact with one another and the people with whom they exchange information is referred to as

the structural dimension. This dimension of SC describes the type of personal relationship that

individuals or members of networks have formed through the history of encounters with one
another (Sachez-Famoso et al., 2014). A social system might benefit from a shared code or

paradigm that provides a broad perspective on its common vision and aims, whereas cognitive

dimension refers to the combination of resources that makes this code or paradigm possible (Lee

and Wu, 2018). Organizational change from a strategic perspective is substantially absent from

previous literature, which focuses mostly on the repercussions of SC. Reducing an organization's

reliance on a single path is the focus of strategic reinvention (SR) (Volberda et al., 2001). When

it comes to strategic planning, the term "SR" incorporates all that a company does in order to

ensure the long-term viability of its economic ventures. SR is viewed as a continuous process,

despite the fact that there is a distinct transition between states (Schmitt et al., 2018). There are

two essential aspects of Strategic Renewal (SR): discontinuous change and incremental renewal.

Organizations have undertaken major endeavours to discard and replace critical components of

their long-term strategy in order to improve their long-term prospects for success (Herbane,

2019). gradual renewal, on the other hand, is a set of minor step-by-step approaches to

implementations and ideas that a company begins over time in response to market risks and

possibilities (Klammeret al., 2017). As environmental threats and possibilities grow, a firm can

benefit from SR by rethinking its present business model in order to address them and seize new

chances. Due to the shorter lifespan of SMEs, they have less distinct resources and strategic

directions than large corporations.. According to Herbane (2019) and Vandaie (2017), it is

critical for enterprises to have proper management of distinctive resources and expertise to

support the process of strategic transformation and renewal as required by the environment.

Consequently. Social connections and the strength of their connections between members of a

collective network form SC's structural dimension. These patterns and connections serve as a

mechanism for SC's relational and cognitive dimensions. There are two types of strategic
renewal (discontinuous transformation and incremental renewal) that can be achieved through

structural dimensions in SC, as described by Asiaei and Jusoh (2017). (Yasir et al., 2017). SC's

relational aspect is linked to the network's trust, norms, and members' sense of self-identification

(Lee and Wu, 2018). Creating an environment where new information may be generated,

acquired, and implemented both within and outside of the company is made possible by building

a culture of trust, norms, and identity. The collection of resources that constitute a collective

representation and enable the interchange of information is the cognitive dimension of SC

(Subramaniam and Youndt, 2005). In addition, organisations can increase their existing

knowledge base through these interactions, which is important for the transformation and

renewal of business models.

Coordination and synergy in the form of a firm's networks can help firms respond to changes in a

timely manner by utilising knowledge and data from their ties (Asiaei and Jusoh, 2017). The

ability of organisations to adapt fast to changes in the external environment is enhanced by SC's

relational and cognitive skills (Cunha et al., 2020). One way to define and measure the long-term

viability of a business is through its capacity to develop strategic attention while being adaptable

and nimble; this is what we mean when we talk about SA (Strategic Attention) (Arbussa et al.,

2017). Conversely, the ability of the firm to quickly deal with unappealing obstacles and deal

with unexpected and novel strategic surprises that arise in the business environment has been

termed by Xing et al. (2020) as SA. Adaptability, flexibility, and SA of companies are all

enhanced by SC, which creates a mechanism for mutual trust and information exchange among

the actors in business networks (Majid et al., 2019; Inkpen and Tsang, 2005). SC aids the

competitiveness of the firms by reducing additional costs, generating new ideas, and exchanging

information through expanding the knowledge base (De Clercq et al., 2013). A network's role in
a company's success is to foster mutual trust and information exchange (Ivory and Brooks, 2018;

Villena et al., 2011). Because of this mutual trust and sharing of knowledge, businesses are able

to move forward more quickly (De Clercq et al., 2013; Thrassou et al., 2018). When new

knowledge is developed, learned, and put to use in order to take advantage of market possibilities

by enhancing already-existing organisational skills, SA of companies is increased according to

the knowledge base perspective and the dynamic capability theory (Thrassou et al., 2018). The

study concludes, based on the explanation above, that SA is a competence that enables a

company to respond proactively to and adapt to changes that happen as a result of an

unpredictable environment and is heavily dependent on SC management.

Strategic agility:

Firms can adapt rapidly and acquire critical changes in behaviour, capability, and knowledge in

order to achieve strategic goals by using SA as a fundamental means (Cunha et al., 2020). Long-

term change can be accomplished by strategically agile organisations by reconfiguring both

internal and external resources (Al Humaidan and Sabatier, 2017). Agility in strategy and

structure requires the rapid delivery of strategic information that leads to a beneficial change in

the processes, culture, and systems of organisations (Pratap and Saha, 2018). In this way, a

company's SR might begin to develop (Agarwal and Helfat, 2009). Strategically agile companies

have a more flexible operating system and are better able to respond to changes in the

environment than their rigid and stiff counterparts (Jones and Macpherson, 2006). For example,

in a context of high turbulence and complexity, strategically agile organisations are capable of

effectively managing risk, as well as providing a swift basis for SR.

SA, as a result of SC, is the primary mechanism by which SMEs can change their organisational

structure and strategy to achieve SR. ' However, prior research has shown a positive correlation
between SA and organisational change (see, e.g. Cunha et al., 2020; Zahra, 1996). As a result,

this study examined how SC affects SR through SA. When it comes to adaptability, SA is based

on the firm's commercial ties and the interactions of players incorporated in its networks

(Agarwal and Helfat, 2009). Relationships and interactions like these generate new ideas and

information, which are essential for the start of SR in firms (Cunha et al., 2020). It is possible

that SC can have positive effects on the transformation of firms, but the process of initiating the

SR is a difficult and time-consuming one that requires a firm's ability to adopt changes quickly in

time and cost-effectively, which are characteristics of SA firms. Thus, SA serves as a catalyst for

SC to accomplish and initiate SR. In order to achieve SR, it is helpful to have a higher degree of

SA, as well as specific trust and coordination skills. SC enhances the strategic alternatives for

ongoing transformation and firm agility in the context of small and medium-sized enterprises

(SMEs) (Inkpen and Tsang, 2005). As a result of SC, companies are able to work together more

effectively to adapt to changes in an agile manner (Xing et al., 2020). A study by Arbussa et al

(2017) found that SA has the potential to assist companies gain an advantage over their rivals in

a more rapid manner. For example, according to the dynamic capacity hypothesis, a company's

ability to adapt, augment, and renew its key competences like SA over time is a driving force

behind its renewal journey (Teece, 2012). Since the SA serves as a mediator, it follows that an

important role is played by the SC in helping to convert organisations into those that are more

flexible and agile. Having a well-established organisational network is a significant factor in the

conversion of chances for change into SR (Inkpen and Tsang, 2005; Cunha et al., 2020). Ivory

and Brooks (2018) recognise that strategically agile organisations take use of clear

environmental opportunities for transformation through strategic agility (SC). SA Strategic

renewal of SMEs 1881 provides SR and SC with the precise competencies that a firm needs to
commence in time (Bai et al., 2020). SR of companies will be positively affected by SA and SC

that are both multifaceted.

Firms with higher AC were shown to be better able to handle external knowledge and use it

effectively in order to drive organisational change and renewal (Escribano et al., 2009; Jansen et

al., 2005). According to Cohen and Levinthal (1990), a company's ability to perceive, acquire,

and utilise new information or knowledge for commercial purposes is referred to as its AC.

According to Leiponen and Helfat (2010), a company's ability to gather fresh knowledge for the

purpose of generating new business models and competitive advantages is critical to its long-

term viability. Firms that are able to obtain, transform, and integrate the external information that

creates value for businesses through unique resources like SC are more likely to be innovative,

according to the organisational learning perspective (Rezaei-Zadeh and Darwish, 2016; Zahra

and George, 2002). In order to enhance the link between SC and firm's SR, it may be necessary

for the firms to display a higher level of AC in their approaches (Escribano et al., 2009). Having

a larger AC allows companies to more effectively assimilate, process, and make use of new

knowledge created by SC, as well as actively seek new ways to fast react to environmental

changes (Rezaei-Zadeh and Darwish, 2016). Firms' ability to transmit and apply the acquired

knowledge to their organisational renewal processes may have a distinct influence on the

transformation of organisations as a result of interorganizational acquisition of knowledge.

Strategic flexibility:

The topic of strategic flexibility has been discussed in a variety of ways in the literature. Scholars

in strategy have defined strategic flexibility as the ability of organisations to initiate strategic

shifts (Aaker & Mascarenhas, 1884; Evans, 1991). Sanchez, (1995) defines strategic flexibility

as the ability of an organisation to adapt to uncertain, large, and rapidly occurring environmental
changes that have a significant impact on the company's performance. To put it another way,

strategic flexibility is about a company's ability to deal with unforeseen events and to control the

unanticipated consequences of conventional changes (Hitt, Keats, & DeMarie, 1998). There have

been a number of studies connected to strategic flexibility that emphasise the importance of

resources and technology as the antecedents of strategic flexibility. Platform architectures for

products and procedures, as Sanchez (1995) argued, enable organisations to adapt to changing

market conditions. Although Evans (1991) focuses on technology aspects linked to

organisational flexibility, this is not the case. Strategic flexibility antecedents include resource

immobility and asset specifications (Bock, Opsahl, George, & Gann, 2012; Zahra et al., 2008).

According to these analyses, the role of management has been overlooked when it comes to

strategic flexibility.

Various studies have characterised strategic flexibility in different ways. The ability of an

organisation to adapt to and respond to environmental attributes is referred to as strategic

flexibility (Grewal, & Tansuhaj, 2001). The ability to quickly notice and respond to changes in

the external environment is also considered strategic flexibility in this context (Zahra et al.,

2008). Strategic flexibility refers to an organization's ability to execute the most significant

changes in the external environment, to allocate and deploy resources effectively and efficiently

in order to handle the documented changes. Strategic flexibility allows businesses to fast and

effectively reallocate and rearrange their particular resources and competencies in order to

respond to dynamic circumstances (Roberts, & Stockport, 2009). It was concluded that

networking and strategic flexibility are linked through the identification of various strategic

flexibility activities such as rapid strategy formulation, utilisation of economies of scale,

alignment to competitors or market, influential promotional campaign and efficient and effective
strategic measures in response environmental changes by Bock, Opsahl, George and Gann in

2012. The concept of strategic flexibility as a skill to deal, adapt, and respond to environmental

situations, particularly in the external environment, has been identified by numerous experts,

who believe that this will help firms to gain a competitive advantage. Organizations are flexible

strategically if they are able to adjust fast to changes in the external environment, according to

numerous researchers such as Aaker and Mascarenhas, (1984), Evans, (1991), and Shah, (2013).

Networking with other organisations and top managers, suppliers, or clients can provide valuable

information, knowledge, and resources that organisations can use to reduce uncertainty and

support in crafting superior decisions by considering the exterior environment and the internal

potential of strategic direction implementations successfully, thus enhancing strategic flexibility..

To put it another way, strategic flexibility is the ability of an organisation, built over time, to

respond to environmental uncertainties with the help of its expertise and knowledge (Ghorban&

Gholipour, 2018; Kamasak, James, & Yavuz, 2019). The ability of an organisation to respond to

a wide range of demands in a competitive and dynamic environment is referred to as strategic

flexibility" (Chin, et al., 2016; Umam, & Sommanawat, 2019). It is this study's conclusion that

an organization's capacity for rapid response to changes in the external environment, as well as

its ability to identify and respond accordingly to when and where resources are needed, is

defined as an organisational competency. Organizations must be able to recognise and assess

potential threats, as well as have the ability to mitigate them, in order to have strategic flexibility.

Strategic orientation:

According to Chaganti and Sambharya (1987), strategic orientations of organisations examine

the ability of organisations to quickly adjust to the changing business environment, particularly

the changes occurring as a result of competing firms. Strategic orientations find chances for
firms to expand their market share in the external environment and promote innovation, which is

essential for the rejuvenation of an organisation (Venkatraman, 1989). In order to get an

advantage in the market, businesses, particularly smaller ones, use a variety of strategies to

achieve their goals.

When an organization's core values are considered, its strategic orientation reflects those values

in a way that is consistent with those values (Acquaah, 2007). Researchers have found that

organisations can apply alternative strategic orientations such as entrepreneurial, innovation-

oriented, quality-oriented and technologically-oriented approaches to their business (Marinova,

Ye, & Singh, 2008). Organizations must act strategically to ensure long-term sustainability

because of the increasing intensity of competition in the global business economy, according to

Leskovar-Spacapan and Bastic, (2007). The mix of organisational strategies that impacts a

company's marketing efforts is known as a strategic orientation (Lings, & Greenley, 2009).

The strategic blueprint plans of organisations that lead their operations in order to achieve

competitive advantage, improved performance, a flexible system, and organisational agility are

known as strategic orientation (Jermsittiparsert, & Wajeetongratana, 2019). Strategic orientations

can also be defined as a dynamic system that focuses on the varied implications of specific and

cost-effective features of strategic change on the long-term viability of organisations (Wang, &

Ahmed, 2009). Strategic orientations are defined as a process of aligning resources and strategies

to achieve enhanced performance through organisational renewal by Zhao, Li, Lee, and Bo Chen

(2011). Organizations will be able to adapt their resources and tactics in response to

environmental changes and contingencies thanks to this alignment of resources and strategies. As

a result of the actions of their competitors in their business environment, Zhou, and Li, (2010)

describe strategic orientation as a method of solving challenges that arise as a result.

To add to the growing body of knowledge on strategic renewal, Hassan et al. (2019) and Hakala

(2011, 2012) looked at the various ways in which organisations might focus on different aspects

of their business in order to stay competitive. Using the four elements of market orientations,

relationship orientations, technology, and entrepreneurial orientations, Im, Vorhies, Kim and

Heiman (2016) developed a conceptual framework for strategic orientation. As a result, they

explained how market-oriented and learning-oriented orientations cross numerous times. On the

basis of literature, this thesis considers the following dimensions: market, entrepreneurship,

technology, and relationships. They are included for the reasons that they advise extensive

combinations of that are typically less studied in prevailing literature, and are important for the

long-term sustainability of the company.

When a firm understands what customers want and how they want it done, it has a better chance

of succeeding in the market place (Narver, Slater, & Tietje, 1998). For industrial marketing,

developing inter-organizational relationships is an important strategy because it is linked to the

survival of organisations (Lages Acosta, Crespo, & Agudo, 2018; Human & Naude, 2010).

Relationship orientations are important for this. To succeed in technology-oriented sectors,

organisations must adapt new and advanced technologies for new product creation, which is

considered to be an essential step for long-term success (Deutscher, et al., 2016; Mandal, 2018)

It is also important to note that, in a competitive and dynamic environment, entrepreneurial

orientations help firms react quickly to market opportunities (Acosta & Crespo, 2018; Hassan, et

al, 2019).

There have been a number of new ideas about market orientations in the literature over the past

year. This literature is heavily influenced by Hakala (2011) and Kohli et al. (Jaworksi & Kohli,
1990). When it comes to creating superior values and performance for a business, Hakala (2011)

believes that market orientations are the most effective organisational culture.

Market orientations, customer orientations, and inter-functional coordination are all included in

Hakala (2011)'s conceptualization of the term.

Market orientation also includes, according to Kohli and Jaworski (1990), gathering market

intelligence about current and future consumer needs, disseminating that market intelligence

across functions, and responding to that market intelligence across the entire business. The three

components of market orientation are intelligence production, intelligence broadcasting, and

responsiveness, in the same way. Contrast this with Kohi & Jaworski's (1990) conceptualization

that emphasises further on market intelligence, which has a more limited set of actions than

Narver, Slater & Tietje's 1990 contextualization. However, there are some parallels between the

two conceptualizations above. In the first place, these definitions all emphasise how important it

is for organisations to understand their consumers, and that their actions should be based on this

understanding. Second, they viewed market orientations as a set of actions that are linked

together.

Firm performance:

Most empirical study has focused on organisational performance. According to Memon & Tahir

(2012), an organization's performance can be measured by how much money it makes and other

positive consequences it produces. In the minds of some, this is a multifaceted idea (e.g.

Lumpkin & Dess, 1996; Morgan & Strong, 2003; Simpson et al., 2012). The level of success a

corporation achieves, or what the firm aspires to do (Chelliah, Sulaiman, & Yusoff, 2010), or its

ability to respond and adapt to environmental dynamic (Chathoth, 2002) are all examples of

performance (Emeka, 2015). In other words, a company's performance is defined as a

comparison of its activities to those of its competitors or the industry as a whole (Chathoth, 2002,

p. 27). The primary goal of a business is to generate revenue. To make money, companies must

ensure their long-term viability and sustainability through the ups and downs of the industry's

life cycle, as well as constantly reaching their performance goals. Numerous elements influence

a company's success (Swamidass & Newell, 1987). Beard and Dess (2015) discovered that

industry profitability has a major impact on revenue creation. As a result of these findings, they

concluded that industry return on equity was an excellent predictor of a company's return on

equity. Swamidass and Newell (1987) claim that it is difficult to measure one's performance. In

order to achieve a specific goal, a variety of performance measurements are used (Ferdows & De

Meyer, 1990). Setting goals and targets and comparing them to established benchmarks is a

method of gauging a company's performance (Emeka, 2015). Besides quantitative and subjective

indicators, there are other approaches to evaluate corporate performance. Performance metrics

that rely on self-reported data, such as revenue growth, are referred to as subjective performance

measures (SPMs) (Dess & Robinson, 1984). Subjective performance indicators such as ROA,

ROI, ROE, etc. are inferior than objective performance measures such as reported financials e.g.

ROA, ROI, ROE, etc (Swamidass & Newell, 1987). As a result of the sensitive nature of data

and the need to keep it private, many companies are unwilling to provide objective data (P. T.

Ward & Duray, 2000). Higher correlation between objective and subjective/perceptual data,

however, bolsters the use of perceptual information (Swamidass & Newell, 1987; Vickery et al.,

1993). Generally speaking, there are two primary ways in which a company's performance can

be evaluated: financial and non-financial metrics (Kaplan & Norton, 1992, 2001). For analysing

entire business performance in today's strong competition, non-financial performance needs to be

taken into account as well as financial performance (Kennerley & Neely, 2003a). Employee
morale, motivation, commitment, and retention are examples of non-financial performance

measures (Greenley, 1986), as are the efficiency of business processes, customer retention and

satisfaction, and the quality of products, among others (Kaplan & Norton, 1992, 2001). Financial

performance is measured by a combination of variables, such as sales growth, ROE, Sales

growth, Market Share, and P. Other sub-constructs of these financial construct variables include

stockholder satisfaction measurements (ROE, EPS), operational performance measures (ROS,

Gross Operating Profit) and accounting measures (ROE and ROS). Profitability (ROI and ROS)

and the market's performance are typically used to evaluate a company's performance (share

price, dividend yield ratio). Shareholders and bond holders are the most common types of

investors in a company's capital. These fund providers, on the other hand, have a different stake

in the company. Such indicators as ROE and ROS (Stock Holder Satisfaction) and FCF per share

(Finance related) ratios (Bondholder Satisfaction) are important in determining if investors are

willing to invest in a company (Kaplan & Norton, 2001). For example, Hall & Weiss (2015)

endorsed ROA, Beard & Dess (2015) used ROI and Capon used the profitability ratios of ROE

and ROA, ROS and Price/Cost margin. When it comes to business performance, Nenkat

Venkatraman also used ROA (return on asset) as a metric. Jahera Jr. & Lloyd, on the other hand,

supported the use of return on income (ROI) as a measure of mid-sized firm performance.

However, compared the ROA, ROI, return on sales (ROS), ROI growth, ROS growth, and sales

growth of competitive businesses. Peter, let me get to the point. Market share and sales growth

were used to evaluate the company's performance. It is okay to use a variety of performance

measures, as long as they are appropriate for the context in which they are used. When there is a

lot of competition and moderate growth, market share serves as a solid indicator of business

growth (Schendel & Patton). However, in some dispersed/fragmented businesses, sales growth
serves as a good indicator of business growth. Similarly, a new company in a burgeoning

industry may see a rise in revenue but a decrease in its market share. However, established

companies in well-established industries may have a large market share but moderate sales

growth (Anand & Ward, 2004). Different studies have used different measures to measure

corporate performance, environmental features, strategic planning and operational strategy.

Business performance will be judged according to the perceptions of respondents in respect to

competitors, according to research by Chi et al. (2009). The company's performance

measurements include market share, sales growth, profit margin, ROI, ROA, employee turnover,

and customer happiness. Previous academics have proposed the use of both accounting and

market-based performance indicators in this study.

Non-financial performance has been the subject of scant research, resulting in confusing and

unsatisfactory findings (Markoczy, 2001). As a result, the non-financial performance of

enterprises improves due to more motivated, satisfied, and lower turnover of personnel due to

structural and technological flexibility of firms. Financial and non-financial performance appear

to be linked. However, there appears to be no correlation between financial and non-financial

results.