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Exploring the antecedents of frugal The

antecedents of
innovation and operational frugal
innovation
performance: the role of
organizational learning capability
and entrepreneurial orientation Received 15 June 2022
Revised 6 October 2022
25 November 2022
Ana Clara Berndt Accepted 18 December 2022
Regional University of Blumenau, Blumenau, Brazil
Giancarlo Gomes
Department of Management, Regional University of Blumenau,
Blumenau, Brazil, and
Felipe Mendes Borini
Department of Business Administration, University of S~ao Paulo, S~ao Paulo, Brazil

Abstract
Purpose – This study aimed to analyze the role of organizational learning capability and entrepreneurial
orientation on frugal innovation and, consequently, operational performance within the Brazilian textile
industry.
Design/methodology/approach – The sample consisted of 257 valid questionnaires from the textile industry in
the state of Santa Catarina, Brazil. Data were analyzed using structural equation modeling using SmartPLS software.
Findings – The results showed that organizational learning capability is a strong driver of the operational
performance when mediated by frugal innovation. Evidence also showed that relationships between
entrepreneurial orientation, organizational learning capability, frugal innovation and operational performance
are significant once the direct effect has more power than the indirect effect. Results elucidated different outcomes
that are not in accordance with previously seen studies. Moreover, the latter shines a light on a possible
interference caused by the COVID-19 pandemic.
Originality/value – The study clarifies the relationship that entrepreneurial orientation and organizational
learning capability unleash in frugal innovation and operational performance. It also shows a new situation
when looking at the relationship between entrepreneurial orientation, organizational learning capability and
operational performance.
Keywords Textile industry, Entrepreneurial orientation, Operational performance, Frugal innovation,
COVID-19, Organizational learning capability
Paper type Research paper

1. Introduction
Frugal innovation is increasing in the business organization context because of several
pressures (Hossain, 2021). From an efficiency-based perspective of companies, Bhatti et al.
(2018), frugal innovation is focused on core functionalities (Weyrauch and Herstatt, 2017) and

This paper was supported by the Foundation for Support of Research and Innovation (FAPESC), Santa
Catarina (Brazil), under UNIVERSAL RESEARCH PROGRAM Number: 2021TR000649.
Compliance with ethical standards: We have no conflicts of interest to disclose. This manuscript has
not been published and is not under consideration for publication elsewhere.
European Journal of Innovation
CRediT roles: Ana Clara Berndt: Conceptualization; Data curation; Methodology; Investigation; Management
Writing - Review & Editing; Project administration, Giancarlo Gomes and Felipe Mendes Borini: © Emerald Publishing Limited
1460-1060
Conceptualization; Validation; Software; Formal analysis; Investigation; Writing - Review & Editing. DOI 10.1108/EJIM-06-2022-0320
EJIM cost reduction (Zeschky et al., 2011; Ray and Ray, 2011), with principles of sustainable-shared
engagement to support environmental and social sustainability (Albert, 2019; Pansera, 2018;
Agarwal and Brem, 2017). Frugal innovation (FI) is a result of pressures like local crises and
uncertain contexts (Santos et al., 2020), especially in emerging and undeveloped countries
(Hossain, 2021; Tiwari and Bergmann, 2018), but also a response to social and environmental
sustainability requisites for competitiveness (Santos et al., 2020; Pisoni et al., 2018).
Consequently, in reason of the differentiated vectors (core functionalities, cost reduction and
sustainable-shared engagement) and drivers (country level of development, local context and
sustainability context), FI, although it is associated with simplicity, is not simple to implement.
We believe that strategic efforts typical of high-tech innovations, such as entrepreneurial
orientation (Zahra, 1991) and organizational learning capability (Alegre and Chiva, 2008), are
also necessary to enhance FI. Because of these characteristics, the question is asked: What is the
configuration of strategic efforts for a firm developing FI and gaining operational performance?
To answer this research question, the main objective of the article is to show that frugal
innovation oriented to operational performance is dependent on entrepreneurial orientation
mediated by organizational learning capability. The main objective of this paper is to analyze
the relationships between organizational learning capability, entrepreneurial orientation,
frugal innovation and operational performance. We suggest that FI depends on EO and OLC
in different ways, which will be presented in the hypotheses, and that OP directly depends on
frugal innovation. On the one hand, we propose that the relationship between EO and FI is
mediated by the OLC. On the other hand, we suggest that the relationship between EO and OP
is mediated by FI.
The research hypotheses were tested with a sample of 257 companies in the textile
industry of an emerging country. We understand EO as the trigger to the development of FI
because EO concerns activities that intensify a company’s ability to seize opportunities,
innovate and increase risk-taking (Zahra, 1991). However, when EO is mediated by OLC, it is
better positioned for the implementation of FI because, as a set of tangible and intangible
resources that lead to learning, it allows companies to gain new forms of competitive
advantages (Alegre and Chiva, 2008; Gomes and Wojahn, 2017; Guinot et al., 2020). In this
way, a path from EO to FI mediated by OLC leads to better implementation of FI with OP.
Therefore, the main contribution of this article is to illustrate the paradox of FI. Although
associated with simplicity, FI implementation is complex. In other words, it depends on a
strong strategic effort to manage the antecedents EO and OLC. Thus, the contribution of this
study to the literature lies in its opportunity to provide a complete view of the relationship
between FI and OP (Hossain, 2021; Bhatti et al., 2018) while highlighting the roles of OLC
(Argote and Hora, 2017; Qurnain and Hidayati, 2020; Alegre and Chiva, 2013) and EO (Zehir
et al., 2015; Zahra, 1991). By doing so, it is expected to provide a first and deeper
understanding of intra-industry performance related to EO, OLC and FI. These findings offer
more information to owners and managers regarding frugal innovations so that they can
choose strategies more effectively in times of scarce resources.

2. Theoretical background and hypotheses

2.1 Frugal innovation
Frugal Innovation (FI) is an innovation effort of product and service focused on core
functionalities, reduction of costs and sustainable-shared engagement (Santos et al., 2020).
The product/service resulting from FI is based on an effort concerned with functionality and
performance (i.e. focus only on core product needs and meeting user ease of utility and
durability) (Weyrauch and Herstatt, 2017; Corsini et al., 2021). FI is related to cost reduction
for the goal of improvising while giving a powerful advantage to companies located in
emerging markets that work with scarce resources and infrastructure (Pitelli, 2011; Krohn
et al., 2019; Shehzad et al., 2022). Nonetheless, it is not only about cost reduction but also The
sustainable-shared engagement by increasing affordability through different techniques antecedents of
such as income generation, cost-saving and alternative payment schemes, including even the
creation of local entrepreneurship capability (Bhatti, 2012). These main features are entirely
frugal
in harmony with some industries’ future trends including sustainability, social status and innovation
social causes of uneasiness (McKinsey & company, 2019).
In this way, FI is rapidly disseminating across sectors to empower underserved customers
and narrow social segregation (Hossain, 2018). In essence, FI is a label that encompasses a
wide range of heterogeneous activities across different sectors (Tiwari and Bergmann, 2018),
and it is gaining increasing attention from scholars as well as from practitioners
(Winterhalter et al., 2017). Tiwari and Bergmann (2018) reached a consensus around the
common perception of what FI means, usually referring to innovative offers that meet or
exceed quality standards while enabling ownership/usage cost reduction and a company’s
increased performance.
The above-mentioned characteristics of FI show that it is a specific type of innovation.
Although FI is a solution that has some characteristics in regard to simplicity, its strategic
implementation process is not simple. It is a complex innovation that requires a strategy of
high performance on core functionality and cost reduction, including the issue of sustainable-
shared engagement (Santos et al., 2020; Shehzad et al., 2022). If FI is a specific type of
innovation and complicated to implement, strategic efforts are necessary for its development.
This idea of treating FI as something internal to a company and calling for strategic efforts
remains scarce in the literature (Bhatti et al., 2018; Santos et al., 2020) and, thereby, needs
further development and examination. In this sense, supported by research on strategic
efforts for innovation, we highlight two recurring strategic elements based on their
effectiveness, namely entrepreneurial orientation (EO) (Zehir et al., 2015; Zahra, 1991) and
organizational learning capacity (OLC) (Argote and Hora, 2017; Qurnain and Hidayati, 2020;
Alegre and Chiva, 2013). In this sense, we believe that entrepreneurial orientation as an
anchor for the development of organizational learning capacity is a way for a company to
achieve frugal innovation with operational performance.

2.2 Entrepreneurial orientation fostering frugal innovation and operational performance

Entrepreneurial orientation (EO) concerns activities that intensify a company’s ability to
seize opportunities, innovate and take risks (Zahra, 1991). The first scholars to present
positive empirical evidence of EO having an impact on OP were Zahra (1991), Zahra and
Covin (1995) and Wiklund (1999). Contemporary studies have also found positive relations
between EO and a firm’s performance (Wiklund and Shepherd, 2005; Wang, 2008; Alegre and
Chiva, 2013). Then, there is evidence of the association between EO and OP.
EO is associated with OP because it promotes innovations in the firm. The firm’s decision
to adopt an EO might benefit the company through recurrent innovations and an increased
competitive advantage in regard to its competitors (Ireland et al., 2003). Zehir et al. (2015)
showed that both differentiation strategy and innovation performance mediate the
relationship between EO and firm performance. EO, therefore, is seen as a critical
determinant for achieving a competitive advantage (Covin and Slevin, 1991; Seo, 2020)
through innovative performance enhancement (Perez-Lu~ no et al., 2011; Gunawan et al., 2016).
Zahra and Covin (1995) indicated that EO might be useful for companies operating in
hostile environments, such as in emergent countries or a specific industry (Kantur, 2016;
Qurnain and Hidayati, 2020). Therefore, the context of crises (e.g. Brazil with COVID-19 plus
economic and political instability) in some emerging markets (Alonazi, 2021; Shan et al., 2016;
Vesci et al., 2021) and the sustainability pressure of some industries (e.g. textiles) (Preuss,
2018) may require FI solutions for a company to survive (Hossain, 2018). To develop FI in the
EJIM context of scarcity, pressure and instability, companies need to boost their EO. Then, vectors
(core functionalities, cost reduction and sustainable-shared engagement) and drivers (COVID-
19, economic and political instability and sustainability of the textile industry) of FI are
challenges that companies face to increase their operational performance and, at the same
time, a call for EO in those companies.
H1. Frugal innovation (FI) acts as a mediator variable between entrepreneurial
orientation (EO) and operational performance (OP).
Organizational learning and innovation have been shown to be closely connected to EO
(Wang, 2008) and performance (Jimenez-Jimenez and Sanz-Valle, 2011). Organizational
learning capability is the link that helps the company channel its EO to improve its
innovation and performance results (Alegre and Chiva, 2013). As companies in transition
economies face rapidly changing environments, it is hypothesized that companies with high
levels of EO will engage in organizational learning to acquire the knowledge necessary to
adapt and respond quickly to passing opportunities (Zhao et al., 2011).
To find entrepreneurial opportunities, companies need to learn to look for, recognize and
assimilate potentially valuable knowledge (Monteiro et al., 2019). Organizational learning
plays a key role in entrepreneurial orientation because it facilitates the acquisition and use of
knowledge (Argote and Hora, 2017; Gomes et al., 2022). Corroborating this, Alegre and Chiva
(2013) considered entrepreneurial orientation to be an important determinant for innovation
and performance. However, for the Alegre and Chiva (2013), this relationship is mediated by
organizational learning capacity.
Entrepreneurially oriented firms generally seek new knowledge capability and utilize
available resources that are underpinned by learning processes (Kreiser, 2011). A supportive
learning environment is expected to yield positive changes in a company’s day-to-day
operations and improve its strategic decision-making, with the corollary of achieving
improved business performance. The exploration of new avenues of market information
enables businesses to assess their own position in the market to improve performance levels
(Mantok et al., 2019). Calantone et al. (2002) demonstrated a link between learning orientation,
innovation and business performance. In summary, learning orientation is believed to be one
of the critical factors of market orientation and innovativeness and, thereby, to frugal
innovation. Furthermore, it might also have a significant impact on organizational
performance (Lee and Tsai, 2005).
H2. Organizational learning capability (OLC) acts as a mediator variable between
entrepreneurial orientation (EO) and frugal innovation (FI).
Figure 1 shows the theoretical model of this research, indicating each hypothesis.

3. Method
3.1 Population and sample
The Brazilian textile frugal innovator has a profile based on the factors of adaptation and
flexibility. This is due to the hostile environment (Shan et al., 2016) in which textile companies
are inserted as well as to the rapid changes in fashion trends (McKinsey & company, 2019).
The advent of COVID-19 only brought faster changes to this already dynamic routine.
Brazil occupies the fourth position among the world’s largest producers of clothing and
the fifth position among the largest producers of textiles. It is also the largest complete textile
chain in the West as the only country that features the production of fibers, such as cotton
plantations, to fashion shows, passing through the processes of spinning, weaving and
processing textiles to the manufacturing of clothing and then to retail. As a result, Brazil is a
world reference in beachwear, jeanswear and homewear design, and its fitness and lingerie
 Entrepreneurial
The
Orientation antecedents of
frugal
innovation
Firm
Frugal Innovation Performance

Organizational
Learning Capability Figure 1.
Research theoretical
Note(s): Path of hypothesis H1 model with hypotheses
Path of hypothesis H2

segments have also grown. However, the sector has suffered consecutive market-share losses
in relation to imported products, especially from Asia and, in particular, from China. Thus, the
industry has been undergoing significant changes in its organizational structure, ways of
organizing production and work and especially in innovation.
McKinsey & company (2019) has stated that China’s textile industry is falling short and
that there is a large market growing in Latin America, with a bright spot in Brazil. Santa
Catarina’s industry was chosen due to its importance to the Brazilian textile market.
This state is the national leader in clothing and accessory production, responsible for 26.7%
of national production (ABIT, 2021); it is also in second place for states that employ the largest
number of workers within the sector (FIESC, 2020a, b).
More than ever, fashion consumers are seeking access to services and products instead of
owning them. Thus, textile players are now venturing into more-sustainable activities such
as refurbishment, resale and subscription rental models, following the “rent-not-own” trend
(e.g. Spotify, Netflix and Uber) (McKinsey & company, 2019). As society’s consumption
behavior is changing, some industry trends are also emerging, including the reuse of
discarded items for new-item manufacturing (FEBRATEX, 2019) or used-clothing
compilation, also for reuse but in rental-business models (McKinsey & company, 2019).
The textile industry was one of those most affected by the pandemic, and consumers are
now more favorable toward buying and consuming brands that are linked to social and
sustainable activities in some way (SEBRAE, 2020a). Thus, Brazil’s textile industry, with a
history of almost 200 years, has become the world’s fifth-largest and the fourth major
producer. Investments in this sector reached USD $894.4 million in 2019 (ABIT, 2019), and
Santa Catarina alone is responsible for 26% of the country’s textile industry activities and is
categorized as the largest producer in Brazil (ABIT, 2021).
The state of Santa Catarina is also the seventh-largest exporter in Brazil (ABIT, 2021), and
the textile sector is one of the most promising for 2022 (FIESC, 2020a, b). Such an environment
is believed to be characterized by frequent adaptation toward new technologies and
innovation processes, as trends for upcoming years embrace its cultural heritage, use of
advanced materials and online businesses (FIESC, 2020a, b). Hence, during the pandemic,
Santa Catarina’s textile firms were able to seek innovation and new ways of working
(SEBRAE, 2020b; Di Minin et al., 2021) such as changing the product mix (FIESC, 2020b).
Thus, this research hypothesis will be tested in Santa Catarina’s textile industry.
Regarding companies’ sizes, the classification chosen in this study was that of SEBRAE,
the Brazilian Micro and Small Business Support Service. This Brazilian agency ranks firms
as large (500þ employees), medium (100–499 employees), small (20–99 employees) and micro
(1–19 employees) organizations (SEBRAE, 2020c).
EJIM As for population, to address a lack of reliable sources that compiled all textile firms in the
state, three databases were merged: Santa Catarina Moda e Cultura, Federaç~ao das Ind ustrias
do Estado de Santa Catarina and Serviço Nacional de Aprendizagem Industrial. This merger
indicated a final total population of 9,042 firms. For the present study, we chose to restrict
respondents in regard to seniority. Hence, only C-level (corporate level) employees, representing
the most highly ranked executives of an organization, were asked to respond. This resulted in
fewer respondents, as the focus of the questionnaire was on managers, directors, CEOs and
owners as key informants. The sample for this study was 257 respondents.
In this context, Garcıa-Morales et al. (2012) affirmed that samples of companies consistent
with relatively homogeneous geographic, economic, political, sociocultural, technological
and/or legal spaces can minimize the impact of variables that cannot be controlled in
empirical research. Therefore, organizations studied in this research were all located in
municipalities in the state of Santa Catarina.
To define the size and selection of the sample, statistical criteria for calculating the sample
size were used. Based on the G*Power 3 software version 3.1.9.2 (Faul et al., 2007), considering
four predictors with a total sample of 257 respondents (post hoc), the statistical power was
99.99%, with a significance level of 5% and average effect size f2 5 0.15. Therefore, as the
model obtained appropriate values, the sample size is understood to be sufficient to test the
hypotheses.

3.2 Data collection

Data were collected through a survey. An introductory email was sent to each of the potential
respondents with overall information about how to complete the questionnaire, along with
the recommendation that managers lacking knowledge and information about the variables
not respond. Finally, the cover letter also explained the purpose of the study.
To reduce common method bias (CMB), several precautions were taken before and after
data collection, following the recommendations of Podsakoff et al. (2003) and MacKenzie and
Podsakoff (2012). First, we assured our participants that their responses were private and
confidential and would remain so. Second, to maintain the study’s validity and reliability, the
constructs used were gathered from previously tested studies. Third, we conducted a pretest
to ensure the validity and accuracy of the data-collection instrument regarding clarity and
understanding of terms, form, breakdowns and the order of questions. It was verified that
removing any question from the instrument at this stage was unnecessary. Lastly, Harman’s
single-factor test was conducted. Following MacKenzie and Podsakoff (2012), the results
showed a 32.179% variation for the first factor, which is adequate once it exceeds the 0.5
index. Data were collected from October 2020 to February 2021.

3.3 Variables measurement

The survey was based on previously built constructs as one instrument could not precisely
measure all points (Jimenez-Jimenez and Sanz-Valle, 2011). Hence, a subjective scale was
formed since answers were to be given from the respondents’ perspectives. The survey
included a seven-point Likert scale to facilitate the computer analysis of questions with pre-
coded answers.
The Organizational Learning Capability construct is formed by five dimensions
developed by Chiva et al. (2007) and is a second-order construct. These dimensions can be
understood as: Experimentation, Interaction with the External Environment, Dialogue,
Participatory Decision-Making and Risk-Taking. Measurement was conducted via a seven-
point Likert scale for all items: 1 5 totally disagree and 7 5 totally agree.
Entrepreneurial Orientation is a first-order construct formed by five items proposed
by Khandwalla (1977). Later studies (Covin and Slevin, 1989) extended and refined the scale.
The five items are present in the studies by Hult et al. (2007), therefore, the scale is well The
established in the literature. A seven-point Likert scale was used for all items: 1 5 totally antecedents of
disagree and 7 5 totally agree.
Frugal Innovation was measured by three dimensions initially conceived by Santos
frugal
et al. (2022) and is a second-order construct. These dimensions are Substantial Cost Reduction, innovation
Creation of a Frugal Ecosystem and Focus on Core Functionality and Performance. Each one
encompassed additional items, and all were answered using a seven-point Likert scale where
1 5 totally disagree and 7 5 totally agree.
Finally, Operational Performance is also a first-order construct. It was calculated
according to Calantone et al.’s (2002) six variables: Delivery time performance, Speed to
introduce new products/services in the operational process, Compliance with product/service
specifications, Flexibility to change the product/service mix, Unit cost of production and
Flexibility to change the volume of operations. Responses were made via a seven-point Likert
scale: 1 5 totally disagree and 7 5 totally agree.
To analyze the data, we applied the partial least squares path modeling algorithm (PLS-
PM). The choice of this method is adequate when the purpose of the research lies between the
need to test a theory and to predict patterns (Hair et al., 2017).

4. Results
In this section, the main research results are presented, beginning with sample characterization.
First, the manager’s sex was considered. Of the total number of 257 respondents, 164 (63.81%)
were male and 36.19% (93 respondents) female. Company size was analyzed using SEBRAE’s
(2020c) classification as a categorization form, with two managers choosing not to answer the
question, which thereby represented 0.78% of the total number of answers. Hence, the majority of
respondents (103) were from large companies (40.08%) and 93 represented small companies
(36.19%). The sample also included 38 medium (14.74%) and 23 micro organizations (8.99%).
Lastly, each company’s investment profile, i.e. national or foreign, was analyzed. The
results indicated that 253 companies (98.44%) comprised national investments, while only
four (1.56%) had foreign investments. Managers were also asked about their company’s
export situation. A total of 125 (48.64) respondents reported that their company currently
exports, and 51.36% (132) reported that their company does not export at the present time.

4.1 Reliability indicators and internal consistency validation

Initially, literature parameters based on Hair et al. (2017) were tested as a way to verify the
model’s reliability. Therefore, the squared outer loading (λ2), which has to be > 0.5 in
exploratory studies (Chin, 1998), was analyzed. Following this first analysis, three indicators
did not meet the recommended index. Consequently, Core1, Core2 and Cost6 were excluded
from the study resulting in the following tests being performed without them.
The variance influence factor (VIF) was analyzed and, as it should, presented values < 0.5
for all indicators and constructs. Therefore, it can be inferred that the study does not have
severe multicollinearity data. Following this, the internal consistency of the study’s data was
checked. The rho_A function indicates reliability for each construct (Dijkstra and Henseler,
2015) and is presented below. Hence, each dimension, i.e. Cronbach’s alpha (Cα), composite
reliability (CR) and rho_A function, is expected to have a >0.7 index (Dijkstra and Henseler,
2015; Hair et al., 2017). Lastly, the average variance extracted (AVE), expected to present a
>0.5 result, was calculated. All are presented in Table 1.
As seen in Table 1, the AVE, Cronbach’s alpha, CR and rho_A of all dimensions
presented were above the expected indexes, indicating high reliability (Hair et al., 2017).
As the final test to complete SEM analysis, the discriminant validation of all dimensions is
EJIM Dimension Cronbach’s alpha rho_A CR AVE

Dialogue 0.812 0.821 0.878 0.644

Risk-Taking 0.770 0.776 0.897 0.813
Participative Decision Making 0.849 0.852 0.909 0.769
Interaction with the External Environment 0.713 0.748 0.838 0.634
Experimentation 0.854 0.855 0.901 0.696
Frugal Ecosystem 0.736 0.749 0.852 0.660
Core Functionalities 0.764 0.776 0.850 0.588
Table 1. Cost Reduction 0.810 0.830 0.870 0.577
Reliability and internal Entrepreneur Orientation 0.853 0.860 0.900 0.692
consistency tests Operational Performance 0.841 0.848 0.883 0.558

needed. Thus, the heterotrait-monotrait ratio of correlations (HTMT.90) was performed to

assess the discrimination between latent variables (Henseler et al., 2014). Table 2 presents
all results.
The HTMT values showed indexes below 0.90 in almost all dimensions, as suggested by
the literature (Hair et al., 2017), except for Core Functionalities and Frugal Ecosystem.
However, an assessment of content validity showed that the indicators were loaded
separately in the constructs. Furthermore, these constructs are conceptually different (Santos
et al., 2020), being distinct and nomologically valid. Therefore, based on the previous results,
it is possible to infer that this research construct demonstrated acceptable limits enabling the
SEM analysis. Values of R2 adjusted R2 and Q2 (for each of the latent variables) were analyzed
and are presented in Table 3.
As Cohen (1988) suggested, R2 values > 26% are expected to have a significant effect.
Table 3 shows that all dimensions showed an R2 > 0.260. Thus, the model’s result is expected
to suffer a significant negative effect from these dimensions. For the Q2 results, all indicators
were >0, confirming the model accuracy and highlighting the model’s predictive power.

4.2 Structural model results – direct relationship

As it was possible after all the tests presented above, the constructs’ relationships were
analyzed and are presented in Table 4, i.e. beta coefficient (β), p-values, t-values and f 2.
Focusing on measuring the model’s significance, first, the t-value and p-value tests were
analyzed. Hair et al. (2017) stipulated that t-values should be ≥ 1.96. In the results presented
above, all t-values were ≥1.96 except for one – the direct relation between OLC and OP. As for
the p-values, the same condition applies; all p-values are <0.05, with the direct relation between
OLC and OP as an exception.
As Cohen’s (1998) guidelines are often used to measure the f 2 effect, they are also
presented in Table 4. For Cohen (1988), a large f 2 effect presents a value of 0.35 or greater,
while medium effects present a minimum value of 0.15 and small effects present a value of
0.02. Therefore, it is possible to affirm that, in the direct relations test, the results found were
mostly small and medium effects, having only the EO–OLC relation of a high effect as an
exception. Lastly, only the relationship between OLC and OP could not be confirmed through
a BCa bootstrapping with 5,000 replications.
Hence, it is possible to infer that OLC’s second-order construct (Table 4) shows validity
between its first-order variables: Dialogue (β 5 0.874), Experimentation (β 5 0.837),
Interaction with the External Environment (β 5 0.667), Participatory Decision-Making
(β 5 0.820) and Risk-Taking (β 5 815). In regard to Frugal Innovation, it also shows validity
between its first-order variables: Core Functionalities (β 5 0.893), Cost Reduction (β 5 0.805)
and Frugal Ecosystem (β 5 0.865).
Dimension 1 2 3 4 5 6 7 8 9 10
The
antecedents of
1 – frugal
2 0.682
3 0.742 0.460 innovation
4 0.980 0.668 0.660
5 0.617 0.359 0.790 0.556
6 0.601 0.337 0.643 0.567 0.550
7 0.763 0.519 0.750 0.800 0.611 0.541
8 0.646 0.465 0.560 0.637 0.432 0.387 0.724
9 0.692 0.485 0.733 0.529 0.683 0.560 0.537 0.463
Table 2.
10 0.712 0.486 0.838 0.573 0.687 0.622 0.723 0.508 0.821 – Discriminant
Note(s): 1 – Core Functionalities; 2 – Cost Reduction; 3 – Dialogue; 4 – Frugal Ecosystem; 5 – Experimentation; validation –
6 – Interaction with the External Environment; 7 – Entrepreneur Orientation; 8 – Operational Performance; 9 – Heterotrait-
Participative Decision Making; 10 – Risk-taking Monotrait (HTMT)

Dimension Q2 R2 Adjusted R2

Organizational Learning Capability (second-order) 0.187 0.447 0.445

Dialogue 0.460 0.764 0.763
Experimentation 0.456 0.698 0.697
Interaction with the External Environment 0.265 0.449 0.447
Participative 0.489 0.672 0.671
Risk-taking 0.514 0.664 0.663
Frugal Innovation (second-order) 0.201 0.516 0.512
Core Functionalities 0.442 0.797 0.796
Cost Reduction 0.347 0.648 0.647
Frugal Ecosystem 0.467 0.749 0.748 Table 3.
Operational Performance 0.217 0.427 0.420 R2, adjusted R2 and Q2

Analyzed relationship Coef (β) t-values p-values (f2)

Second-Order Construct – Organizational Learning Capability (OLC)

OLC → Dialogue 0.874 51.427 0.000 3.236
OLC → Experimentation 0.837 33.305 0.000 2.310
OLC → Interaction with the External Environment 0.667 15.533 0.000 0.814
OLC → Participative Decision Making 0.820 34.069 0.000 2.050
OLC → Risk-Taking 0.815 36.255 0.000 1.975
Second-Order Construct – Frugal Innovation (FI)
Frugal Innovation → Core Functionalities 0.893 55.573 0.000 3.290
Frugal Innovation → Cost Reduction 0.805 24.211 0.000 1.843
Frugal Innovation → Frugal Ecosystem 0.865 47.570 0.000 2.983
Direct Relations Test
Entrepreneur Orientation → Frugal Innovation 0.431 8.472 0.000 0.212
Entrepreneur Orientation → Organizational Learning Capability 0.669 18.434 0.000 0.808
Entrepreneur Orientation → Operational Performance 0.440 6.005 0.000 0.150
Organizational Learning Capability → Frugal Innovation 0.354 6.943 0.000 0.142
Organizational Learning Capability → Operational Performance 0.043 0.554 0.580 0.002 Table 4.
Frugal Innovation → Operational Performance 0.241 2.938 0.003 0.049 Direct relationship
EJIM The direct relationship test also presented several positive and significant relationships. The
first is between Entrepreneurial Orientation and Frugal Innovation (β 5 0.431), which
corroborates that FI depends on strategic efforts of decision-making by individuals oriented
to entrepreneurship (Krohn et al., 2019). Therefore, it can be affirmed that, in addition to
offering opportunities for new firms, FI is viable whenever it has a manager’s support and
C-level engagement. Therefore, as a way to build and solidify a frugal mindset, it is necessary
to change attitudes and perspectives (such as organizational culture, behaviors and practices)
from the company’s top to the bottom.
EO also presented a positive and significant relationship with OLC (β 5 0.669) and OP
(β 5 0.440). This, too, was foreseen by several scholars (Zahra et al., 1999; Alegre and
Chiva, 2013), implying that EO-focused organizations are able to create strategies for
knowledge-sharing, which positively impacts OP. Hence, knowledge accumulation, financial
resources and organization’s environmental factors such as support for creative processes
and risk-taking are successful keys for managers who seek a greater OP.
As for organizational learning capability, this also shows significance in its direct relationship
with frugal innovation (β 5 0.354). This relationship was supported in studies such as those by
Argote and Hora (2017) and Qurnain and Hidayati (2020), consequently confirming OLC’s role as
an innovation generator for companies, although this positive effect of the relationship between
OLC and operational performance did not show significance (β 5 0.043; p-value < 0.580), thereby
disagreeing with the earlier authors (Alegre and Chiva, 2008, 2013; Jimenez-Jimenez and Sanz-
Valle, 2011). This could be due to the pandemic (COVID-19) interfering with respondents’ abilities
to communicate effectively (SEBRAE, 2020a) since communication is key for achieving a higher
OP through OLC. Moreover, scarce resources might be forcing companies to focus on other OLC-
linked activities such as innovation of processes, products and services in order to be able to do
more with less instead of focusing on operational performance directly.
Lastly, the direct relationship between frugal innovation and operational performance
showed significant and positive results (β 5 0.241). This solidifies Calantone et al.’s (2002)
study in which innovation and operational performance are shown to be strongly and
positively related; it also contributes to Hossain (2018) with empirical evidence on FI’s impact
on OP in a different and exclusive context. Therefore, in times of scarce resources, managers
should focus on companies’ growth and innovation through frugal innovations, reducing
delivery time and speeding up processes to maximize operational performance.
As textile organizations exist in a competitive and hostile environment (Shan et al., 2016),
innovation is a matter of survival, and therefore, as frugal innovations can positively enhance
operational performance, managers should drive companies toward an extensive use of FI in
order to maximize solutions for as many people as possible while making use of minimal
resources.

4.3 Tests of the hypotheses

Mediation occurs whenever a third mediating variable intervenes between other related
variables or constructs. As a way to consider the mediation result as valid, it is necessary that
the multiplication of p-values related to indirect relationship paths shows significance.
In addition, according to Zhao et al. (2010), when significance is found in both direct and
indirect ways, the mediation should be classified as a complementary mediation.
Consequently, in cases where the direct relationship does not have statistical significance,
but the indirect relationship does, the mediation should then be considered total, meaning
that all the significant effect occur through – and only through – an indirect relationship (Hair
et al., 2017). Thus, all indirect relationships can be better understood in Table 5.
In order to test the mediation analyses presented in Table 5, the procedures developed by
Hair et al. (2017) were applied, following Zhao et al.’s (2010) general mediation recommendations.
Through a methodological process, the hypotheses could be confirmed. The mediation type of The
the supported hypotheses is validated as complementary mediation once those effects point in antecedents of
the same direction and represent significance greater than 5% (Hair et al., 2017).
Regarding the first hypothesis, i.e. Frugal innovation (FI) acts as a mediator variable
frugal
between entrepreneurial orientation (EO) and operational performance (OP), this was innovation
confirmed as a complementary mediation. This result adds to the findings of Zahra and Covin
(1995), Kantur (2016) and Seo (2020), thus signaling that EO is a determinant for firms’
operational performance once they elevate their innovation levels, including FI.
Moreover, it complements Wiklund and Shepherd’s findings (2005) showing that the path
of FI to OP can gain a competitive advantage when C-level personnel make extensive and
correct use of EO. Therefore, managers should be oriented to foresee market opportunities,
take risks more frequently and act faster in response to innovation matters in order to be able
to introduce products and services more rapidly within a company’s limitations while saving
resources in the operational process and even offering a return, in an economic way, for future
buyers.
The second hypothesis, i.e. Organizational learning capability (OLC) acts as a mediator
variable between entrepreneurial orientation (EO) and frugal innovation (FI), was also
confirmed as a complementary mediation. This is in accordance with most recent studies
including those of Ning and Li (2016) and Guinot et al. (2020). Likewise, some reflections can
be made. As noted earlier, textile organizations are usually characterized as competitive
environments (Gomes and Wojahn, 2017) where knowledge-sharing and continuous learning
may be discouraged in times of crisis (Di Minin et al., 2021). This is in accordance with Santos
et al. (2020) in regard to the importance of a company having a clear FI strategy to avoid
cutting strategic efforts essential to innovation. This result also agrees with those of recent
studies (Corsini et al., 2021; Di Minin et al., 2021; Vesci et al., 2021) that found that the current
global situation might indicate that textile firms have shifted their focus from OLC strategies
for performance to broader and innovation-seeking OLC strategies. Therefore, change
valorization and facilitation, encouraging coping with new situations and the presence of
cross-functional work teams have become essential as resources have become more scarce.
OLC might not directly encourage learning and knowledge-sharing experiences focusing on
operational performance (OLC → OP, β 5 0.043; p-value <0.580). However, they are certainly
behaving proactively with those same experiences while searching for innovation and even
frugal innovation. In the pandemic context, companies might have been forced to shift their
focus and started to do more with less, thereby putting FI into practice. Resources have become
even more scarce than before; hence, the search for different and optimized processes, as well as
durable and effective products/services that meet consumers’ economic limitations as well as
their needs, have become essential in order for firms to remain in the market.
Figure 2 shows a summary of the principal path to developing FI. In short, entrepreneurial
orientation is the driving force for companies to carry out performance-oriented frugal
innovation. However, frugal innovation can be enhanced when the entrepreneurial
orientation fosters organizational learning capability. The results attest to FI as a complex
innovation that depends on strategic efforts in entrepreneurial orientation (EO) (Zehir et al.,
2015; Zahra, 1991) and organizational learning capacity (OLC) (Argote and Hora, 2017;
Qurnain and Hidayati, 2020; Alegre and Chiva, 2013).

Hypothesis Indirect relationship Coef (β) t-values p-values Result Mediation type

H1 EO → FI → OP 0.102 2.498 0.013 Supported Complimentary Table 5.

H2 EO → OLC → FI 0.236 6.014 0.000 Supported Complimentary Hypotheses test
EJIM 4.4 Control tests
We also analyzed whether there is a statistical difference between the size of organizations.
The companies were divided into two groups: micro, small and medium organizations, with a
total of 154 companies; and large organizations, with 103 companies. Analysis of statistically
significant differences in subgroups was based on multigroup analysis procedures (PLS-MGA),
which is appropriate as the subgroups are substantially different sizes (Sarstedt et al., 2011).
According to Damanpour (2020), a company’s size can affect its organizational structure
and the innovation process. Large companies may have some advantages, such as greater
availability of resources. However, this factor does not seem to play a decisive role (Gomes
et al., 2022). Our results made it possible to verify that the organization’s size did not affect the
variables tested.
Although small companies lack essential resources and know-how to invest in innovation,
their structure allows them greater independence from institutional bureaucracy and more
flexibility. Moreover, information technologies minimize the waste of fabrics and defects
resulting from the production process, allowing large and small organizations to compete on
equal terms.

4.5 COVID-19 and frugal innovation

Textile companies have changed from performance-focused strategies to more-frugal
innovation strategies as consumers have begun asking for more-sustainable products,
forcing such companies to rethink their product mix. Hence, organizations are increasingly
forming a complex profile based on preoccupation with sustainability and reuse possibilities
as well as to overcome the challenge of fast fashion (SEBRAE, 2020b).
As companies learned with the pandemic, much innovation emerged as a way to maximize
efforts and minimize economic losses. According to the Brazilian National Confederation of
Industry (CNI), 83% of companies will need innovation to meet the challenges of this post-
pandemic situation. Of the 400 organizations studied, 68% have altered their production
processes in some way in order to innovate (CNI, 2020).
Examples of frugal innovation in Brazil’s textile industry can be provided. Colis~ao, a brand
from Santa Catarina, is focused on the textile and menswear market and continually searches
for innovation in ecological fabrics. For example, the company focuses on products made with
yarns of recycled origin and shirts with yarns made from PET bottles (SEBRAE, 2021).
Another exemplary FI case that emerged during the pandemic is that of Dalila T^extil, also
from Santa Catarina, a national and American reference in developing textile solutions in
circular knitting. Dalila T^extil and Cataguases, a company from the state of Minas Gerais
(reference in light and flat cotton fabrics supply), combined their expertise to produce and
distribute fabrics with an antiviral finish, which acted to inhibit the spread of the coronavirus,
without losing essential characteristics such as comfort and durability (SEBRAE, 2021).
Frugal innovation has played a key role during the coronavirus pandemic. Examples can be
found in recent studies taking the COVID-19 outbreak as an approach. From companies that
frugally innovated, changing the manufacturing floor to produce ventilators (Vesci et al., 2021)

Organizational
Learning Capability
Figure 2.
Summary of the
principal path to
Entrepreneurial Operational
developing frugal Frugal Innovation
Orientation Performance
innovation
to companies that invented a new fabric containing antiviral technology (SEBRAE, 2020b), it The
became clear that managers began to adapt processes agilely in order to meet the crisis situation antecedents of
involving resource-scarce innovations (Di Minin et al., 2021; Shehzad et al., 2022); this could then
lead to improved operational performance.
frugal
As COVID-19 has changed the way people socialize, communicate, work and learn, innovation
managerial and employee activities are now focused on the adaptability and flexibility of new
processes, services and products. Therefore, OLC is being used as a way to bring more
innovation to companies but not necessarily OP. Yet, this shift in OLC focus consequently
elevates OP levels.
Another factor linked to the approaches that have emerged from the COVID-19 pandemic
is that, as the world began working from home, operational performance became even more
essential. Nevertheless, to achieve that, productivity is also needed. It can be achieved
through C-level engagement and OLC exchange, which, if not explicitly encouraged by a
manager’s attitudes, might lead to a decrease in learning levels, as seen in Alonazi (2021), and
consequently impact OP.
Accordingly, developing a multidisciplinary R&D team to implement the frugal innovation
mindset within a company became even more necessary as, in light of the pandemic and its
effects, R&D strategies became a form of protecting human life while producing and delivering
fast and frugal innovations (Di Minin et al., 2021).

5. Conclusion
The main aim of the present work was to analyze the mediating relationship between
organizational learning capability (OLC), entrepreneurial orientation (EO), frugal innovation (FI)
and operational performance (OP) within the textile industry. The results clarify the relationship
that EO and OLC unleashes in FI and OP. This means that it does not simply develop FI and
support the main theses that, although FI is associated with simplicity, the implementation is
complex. FI depends on a strong strategic effort to manage the antecedents of EO and OLC.
In a more positive outcome, the present work provides clear evidence that textile firms can
achieve higher operational performance when acting toward the development of a frugal
environment within the company. Hence, results show that, to support this new type of
innovation, it is necessary to focus more on EO and OLC. Therefore, frugal innovation must occur
through EO and OLC, which should then become the primary focus of textile industry managers.
Moreover, the latter shines a light on a possible interference caused by the COVID-19
pandemic. Hereby explained, the greater the frugal innovations are in textile organizations, the
more likely firms are to increase their operational performance. It is also necessary to highlight
the competitive and, nowadays, resource-scarce environment in which those companies are
inserted. Such environments have been characterized by slow change but in constant need of
innovation. Thus, it can be understood that this environmental change can positively influence
EO attitudes, OLC activities and FI because, when companies need higher operational
performance, a slow-change environment will not lead to the necessary results.

5.1 Managerial and practical contributions

As a way to facilitate and achieve higher operational performance, managers should be
skilled in all three aspects, that is, oriented toward organizational learning capabilities,
possessing an entrepreneurial orientation and being comfortable with frugal innovation
definition and possible outcomes. Although the frugal innovation environment is complex at
first, taking risks will become more likely on a daily basis. Therefore, managers can expect to
make riskier decisions when they start to innovate and should be well prepared to consider
opportunities and decide which risks are worth taking.
EJIM As it is, C-level managers should also enhance and encourage employees’ ideas as a way of
implementing an environment of common change and where sharing is cultural. Hence, once
employees become accustomed to this new scenario, communication will become more open,
transparent and frequent. As seen in this research, these changes could lead the company to a
higher operational performance outcome.
All of this can be achieved by strengthening local partnerships with other companies or
universities and promoting innovation prizes for employees’ ideas for new products, services,
or processes. In addition, experimentation regarding these new ideas could open a channel of
communication between the company and its employees in a more transparent way. As it is,
communication is one of the most effective ways of implementing learning and, therefore,
making the change to a more frugal innovation environment. Another suggestion is to seek
external inputs and to learn from the market and those previously cited partnerships.
This research approach related to the global pandemic leads to several other suggestions.
First, the C-level personnel in a company have an essential role to play in preserving the
company’s environment in such challenging times. Thereby, what is needed from managers
is a new type of employee encouragement – one that involves coping with new and unfamiliar
situations and the need to make decisions without having all the information in hand. Finally,
managers should communicate openly with all employees to ensure that everyone knows the
actual situation and that no one takes unnecessary risks that could harm the company.
In conclusion, textile firms need to change their organizational environments to make it
possible for managers and employees to act more openly and to be creative in presenting new
ideas more often and continually experimenting them, not only in times of crisis. In this way,
textile organizations could play a greater role in implementing a frugal environment and
promoting this new mindset within the company. As a result, such preparation could lead the
industry to take faster action on the matter of frugal innovations, with more knowledge and
information and, thereby, fewer risks to companies.

5.2 Limitations
This study has several limitations. First, the study sample includes only textile industries in
Santa Catarina. Therefore, future research could have a national or even global analysis in
order to identify other relevant findings, which should be encouraged. Second, the collected
data were transversal and, thereby, present other limitations. One is that the present study
was conducted during a pandemic. A longitudinal study could be useful for testing the
model’s causality.
Furthermore, a mixed methodology approach is encouraged for future studies that can
comprise several different qualitative approaches as a way to contribute more deeply to the
results’ triangulation. Moreover, as a pandemic approach is taken into consideration, it would
be interesting to know if work models affect the same variables in any way. Future studies
could then focus on how working models (face-to-face, remote, hybrid) or even productivity
affect OLC and EO and, consequently, to produce frugal innovation creations and operational
performance.

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pp. 293-317. antecedents of
frugal
innovation
Corresponding author
Giancarlo Gomes can be contacted at: gomes.giancarlo@gmail.com

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