2.1. Sustainable Innovation
In the new global economy, large studies have indicated the importance of sustainable innovation trajectory as a central issue for the survival of firms in the worldwide spread of unlimited business competition [52
]. From the microeconomic perspective, sustainable innovation attainment is sometimes called eco-innovation or environmental for its ecological dimension (e.g, [56
]); other terms consider the social dimension (e.g., [58
]), environment–social dimensions (e.g., [59
]), or environmental–economic dimensions (e.g., [60
]) rather than considering sustainability in an integrated manner as people–planet–profit [61
] dimensions that are all engaged in innovation activities, which is a must. However, difficulties arise when an attempt is made to implement sustainability in practice. The balancing effort between monetary benefits, environmentally-friendly benefits, and dimensions of human well-being in sustainable development, alongside the increasing market demands of providing value-added creation of innovation to increase consumer satisfaction, involves lots natural resource exploration and intensive pollution.
For global sustainable consumption and production, a large and growing body of literature has suggested radical technological change in the form of national innovation systems [62
] or global innovational networks [64
] as a way of facilitating international information exchange and collaboration rather than relying on self-governance [65
]. Nevertheless, this approach has only been applied in countries that already have instrumentation for financing science, creation, and human capital. Meanwhile, others do not [67
], such as the Republic of Croatia [68
] and Thailand [69
], for example.
By focusing on developing countries with businesses dominated by small and medium-sized firms (SMEs) with less successful technology, continuous debate about the best strategies for sustainable innovation achievement within global goals can be achieved only if developing countries are also participating. Some studies have underlined the importance of an intermediary in the creation of a network to force an innovation system [70
]. However, some scholars doubt whether a developing system’s ability to innovate would be any different from the developed one, which is characterized by a learning mechanism and the relations of different actors and flexibility in the organizational structure [65
On the management side, behavioral approach and knowledge movement are the keys to figure out before examining the situation from a macro perspective [75
]. In addition, although small firms may lack economic development, technology, and knowledge-intensive procedures, they may capitalize on the learning and innovation formed by a small-firm owner’s perception [77
]. However, far too little attention has been paid in this area, particularly in less developed countries [78
]. A much more systematic study could better identify how firm ability and innovation interact, which are believed to be linked to sustainable innovation.
2.2. Firm-specific Capabilities
Over the last 20 years in strategic management, the resource base has been viewed as continuous adaption through firms’ abilities (e.g., [79
]) rather than looking at resource utilization within activities as a static concern (e.g., [82
]). This resonates in the context of sustainable innovation; achievements that consider environmental integration require more existing competencies, resources, processes, and infrastructures to improve the ecological benefits, social impacts, and economic values. Moreover, in the manufacturing industry, process innovation within a wide range of activities is determined by changing the technology, work processes, or behavioral routines of the organization. For instance, change processes are associated with either total quality management (TQM) and environmental management such as ISO 14000, ISO 14001, and ISO 9000 systems, or TQM [86
] as advanced manufacturing practices supported by circumstances of top management commitment, setup, and financial and system benefit awareness. The latter are dominantly carried out within large firms, which are unlike small firms regarding their internal flexibility, external reconfiguration, and integration capabilities as promising capabilities for innovative strategies, as well as learning network capability and resource acquisition, which enable capturing and exploiting opportunities [91
Large studies that have been focused on small firms suggest stimulating internal initiatives (e.g., a firm’s characteristics and conditions, competency, entrepreneurial vision, and goal orientation) [47
], external factors associated with the company’s efforts to implement sustainable innovation that may affect and/or are affected by corporate activities (e.g., suppliers, consumers, and competitors) [50
], or a combination between internal and external initiatives (e.g., [4
]) that are richly covered by a broad scope of abilities and knowledge in a firm. This study combines the seminal theory of dynamic capability of Eisenhardt and Martin [93
] and Teece et al. [94
], since identifying the effort of the resource dimension is needed. At the same time, combining resources and activities into routines for sustainable innovation achievement particularly relates to the integration of internal and external capacity and the combination of internal and external initiatives following the cognition that developing capabilities cannot be viewed independently, but instead are sequential interdependencies [95
The dynamic capability approach is popular within established firms, but it can also be applied in SMEs due to the business environment faced by SMEs encouraging them to grow their capabilities in order to survive. These can include searching for opportunities, motivating employees, or managing transformation [99
]. Hence, the firm-specific capability is viewed as a driver of sustainable innovation, and is defined as a firm’s ability to create value through a set of resources by matching the changing needs of the environment and gaining future opportunities through cognition and action that is context-specific, dynamic, relational, and humanistic to the particular organizational routines of a firm. A development of this view follows:
, the development of new and improved products or processes based on internal routines and practices promotes intrapreneurship through specific values in pursuing opportunities [103
]. Kuratko and Morris [104
] emphasized that dynamic creation needs to be integrated into corporate entrepreneurship in which decisions of resource allocation are organized by managers to capture the future business environment and emphasize the importance of routines and habits for new processes and operating methods. In other words, the combination of a Schumpetarian perception, which includes introducing novelty and seeking opportunity, with an evolutionary perception that promotes and shapes learning endeavors covered within dynamic capability, would enable either an intrapreneur or entrepreneur to seize the coherence of new opportunity and a firm’s resources. Kyläheiko et al. [105
] viewed firm-specific capabilities from the perspective of entrepreneurial motives, and encouraged exploiting new opportunities by utilizing resources based on existing capabilities. Antoncic and Hisrich [75
] proved the relationship between intrapreneurship role and the growth and profitability of firm performance. Thus, intrapreneurship in SMEs has been believed by some studies as a way to revitalize, reconfigure, and transform resources for the emergence of the dynamic business environment rather than entrepreneurship at the individual level (e.g., [106
, there are outside factors that influence firm development. In this study, an outside factor is perceived as stakeholder orientation, which has a different set of expectations, and neglecting stakeholder expectations may create conflict within the firm [109
]. Hence, the ability to integrate stakeholders’ expected value into the firm is viewed as representative of the dynamic capability approach. Plaza-Úbeda et al. [110
] explicated that integrating stakeholders’ interests as part of the strategic capability of a firm by coordinating and integrating intangible assets (e.g., knowledge) makes it difficult for these assets to be imitated. This capability achievement of a firm leads to distinct managerial and organizational processes of firm-specific capability that reflect dynamic capabilities by utilizing knowledge and learning [49
]. Some studies have supported this shape through integrating stakeholders’ interests into a set of practices that are linked to organizational activities (e.g., organizational learning) [112
]. Black and Härtel [113
] developed and tested a model of process integration with stakeholder engagement, and found that social responsiveness has risen from a firm’s social responsibility orientation.
, internal and external factors influence innovativeness [114
]. Internal factors stem from the firm’s environment, such as suppliers, buyers, and knowledge spillovers, and other factors available from inside a firm, such as for instance, the skill and experience accumulation of workforces [115
]. The dynamic capability approach refers to combining co-specialized assets and capturing value from creative and routine operations of a firm; this leads to various knowledge-related constructs that have moved into knowledge sharing, integration, and creation at the organizational level [117
]. In other words, dynamic capability is not only a matter of capability regarding managing resources or processes, but also changing routines and processes [118
]. Foss [76
] terms this knowledge capability as absorptive capacity. Wang and Ahmed [119
] confirmed this by highlighting the role of absorptive capacity as a combination of external knowledge and absorbing knowledge for internal use.
A large number of scholars have attempted to link the know-how within firm characteristics, but fail to explain the linkages in a coherent way [120
]. This study extends the organizational capabilities under dynamic capability as firm-specific capabilities into intrapreneurship, stakeholder integration, and absorptive capacity.
In innovation management, the constructs are presented within a socio-technical approach that combines people and technology for the specified purpose of innovation within the organization. People represent the socio approach, which includes the capabilities regarding an organization’s internal initiative, external linkages, and transformational capacity underpinned by dynamic capability as a driver. Then, in the direction of change, innovation management converts this within the process of innovation as a technical approach to attain the desired performance of sustainable innovation. The change process envisions best practices regarding process innovation in the manufacturing industry. However, the general practices of each firm are not the same, and one practice may succeed in a firm, but not in others. Thus, this study is looking for practices that can be generalized to others, particularly in SMEs, and the practices of Ponsignon et al. [121
] are utilized as being effective for other firms. To enable these practices for the desired result, a driver is needed within an organization that can be relied on to activate and deploy resources within the capacity of the firm [122
]. This merger action is aligned with the economic shocks and assets reallocation of managers, which emerge from technological change as a competitive mechanism [124
Sustainable innovation is a distinguished concept that lies between innovation and innovation effect, and focuses on the triple bottom line process innovation types in the SMEs of the manufacturing industry. The conceptual framework of sustainable innovation needs to be illuminated. From the evolutionary perspective, sustainable innovation combines the dual theory of dynamic capability and best practices as a ‘body of understanding’ in the firm-specific capabilities toward a ‘body of practice’ in the process improvement of process innovation, which Cohendet and Llerena [125
] and Nelson [124
] explain as a body linkage under the socio-economic approach for attaining sustainable innovation (Figure 1
). This is another approach for sustainability improvement within industries and organizations, besides the utilization of formal decision-making methods [126
Process innovation includes the modification of tools or equipment, and requires the ability to transform knowledge into skill across the entire process. The role of understanding knowledge to generate capabilities in routines as Cohen and Levinthal [129
] exhibited into acquirement, assimilation, transformation, and exploitation, is formed within absorptive capacity. Gray [130
] indicated that absorptive capacity has a strong relationship with innovation regarding the existence of informal and experiential learning activities in SMEs. In the dynamic business environment, this resonates with some studies such as Chen et al. [36
] and Kostopoulos et al. [131
], who found a significant positive association between absorptive capacity and innovation due to the capability of the absorptive capacity of a firm to identify, acquire, and assimilate external knowledge and process it with existing knowledge to internalize and exploit it for innovation benefit. In other words, process innovation is determined by previous investment in knowledge that is either internal or external, and involves choosing the technical activity to exploit opportunities [132
]. This is possible due to knowledge, which is an essential factor for sustainable manufacturing systems and problem-solving, and thus for encouraging improvement. Hence:
Absorptive capacity has a positive relationship with process innovation.
McFadzean et al. [133
] exhibited the missing link of this relationship through the holistic view of previous works of literature that defined intrapreneurship as the individual internalization of entrepreneurial activity stimulus, and innovation as the effort of development with multi-stage processes. This is aligned with Miller and Friesen [134
], who argued that resource availability and capability are basically the same in the firms, except for being differentiated by the existence of innovation. Industries require the specific capabilities of such individual entrepreneurs in the organization that may activate innovation. This has confirmed by some studies, which showed that organizational innovation and performance are directly influenced by intrapreneurship [135
]. Madhoushi et al. [137
] empirically found that in organizational behavior and culture, the shape of process and product innovation is caused by the reinforcement and facilitation of ideas within a proper climate of creation. Fostering new ideas and creativity affects the entrepreneurial behavior of a manager’s mindset; this in turn may increase the values and attitudes of an entrepreneurial organization’s culture, which Shepherd et al. [138
] called the entrepreneurial spiral. Therefore:
Intrapreneurship has the positive relationship with process innovation.
Product and process development such as signing a standalone contract between the principal (customer) and agent (producer) is determined by technology integration [139
], configuring systems (Davies et al. [141
]), and project changes (Kultti and Takalo [142
]) due to constant interaction and engagement with each other. This was illuminated by Zhang et al. [143
] in a case study of British industries using qualitative data analysis to focus on stages or processes that were specific to the activity level of stakeholder interaction in the process of project development and implementation, which lead to idea generation and effective and efficient process development. This finding was aligned with Holmes and Smart’s [144
] case study of non-profit and corporate organizations, in which the dyadic engagement activities of interorganizational collaborations contributed innovation opportunities facilitated by a search and exploration of idea exchange.
Stakeholder integration has a positive relationship with process innovation.
A few researchers have explicitly delineated the relationship between process innovation and sustainable innovation [145
]. Bos-brouwers [11
] explored the innovation process associated with sustainable development within SMEs, which is perceived as “part of a step-by-step process of incremental innovation” rather than radical. This resonates with Foster and Green’s argument that “industrial transformation—dismantling, reducing or re-directing modern industry’s environmentally disruptive ‘brown’ products, processes, and systems and replacing them with ‘greener’ alternatives—requires technological innovation” [147
]. Meanwhile, Sagar [148
] considered technology innovation to be process improvement or technology development into widespread use.
Regarding economic scale and the environment, Porter and van der Linde [149
] supported improved capacity and continual innovation as the basis of competitiveness, regardless of the cheapest inputs or largest scales. They viewed that innovation can be sparked by the environmental standard, which compensates for the cost, and termed it “innovation offset”. It is not only lowering the net cost to match the environmental regulation, it also leads to the firm’s absolute advantages in moving the step forward over the competitors who neglect the regulations. Nidumolu, Prahalad, and Rangaswami [150
] strengthened this opinion that the firms that are already engaged in this sustainability as their goal can afford to exist in the future due to the competitive advantage already gained. For instance, reducing pollution and improving productivity are done at the same time, utilizing the same resources.
On the social side, innovation is a social construct that Bos-brouwers [11
] defined as establishing the effectiveness of process innovation; this requires work environment support, such as for example, safety and valuing individual contributions [151
]. Hence, it conveys significant change, commercially viability, quality improvement, the employment of innovation types, and profitability yield to sustain a firm in the long term [153
]. In addition, another contribution that concerns this social side of innovation includes advantages for protection and extension market shares, efficient operational improvement, reputational improvement, and cost reduction [154
Process innovation has the positive significant impact on sustainable innovation.
Del Brío and Junquera [156
] argued that although “SME peculiarities” include lacking personnel and financial resources, it is also possible to achieve sustainability [157
]. In the empirical study of 31 manufacturing SMEs, Williamson et al. [25
] revealed that the tension between business performance and considering regulation lead to behavior in which the firm tries to improve the performance by focusing on cost reduction and efficiency, as well as obey the regulations by considering the stakeholders of good practices, which together lead to stakeholder and society attractiveness. This is aligned with Ketata et al. [51
], who argued that achieving this stage requires the support of organizational routines and capabilities in processes of experience and learning that are associated with valuable knowledge sources as the absorptive capacity that motivates skilled employees to activate the capacity of a firm. The activation is occurred by an identification function of collecting more information from external environment signals, and then transmitting that information across the organizational boundary into acquiring, transferring, and assimilating new ideas into concrete action [129
]. In addition, participation in sustainability, such as choosing a green strategy, indicates a level of absorptive capacity, since determining types of processes requires the support of absorptive capacity to function processes by assimilating technical knowledge from external sources [156
]. Therefore, absorptive capacity is more likely to be a predictor of performance through innovation [159
Absorptive capacity has a positive significant impact on sustainable innovation.
Absorptive capacity has a positive relationship with process innovation for sustainable innovation.
Establishing the innovation of ‘best practices’ as ‘doing what we do better’ and ‘doing different’ by dealing with the capability of sensing and seizing the opportunities as the entrepreneurial effort of individual effort in the organization is required for sustainability [160
]. This is aligned with Coakes et al. [107
], who argued that attaining sustainable innovation by way of change in the organization needs the role of intrapreneurship, and idea development of marketable products is directed by innovation. However, the willingness of individuals within the organization to move into sustainable innovation is greatly determined by the legislation of the environmental improvement program and cooling it by adopting a ‘best practices’ techniques [163
Intrapreneurship has a positive significant impact on sustainable innovation.
Intrapreneurship influences the process of innovation to have an impact on sustainability.
The importance of considering stakeholder orientation for sustainable innovation has been emphasized by Cairncross [165
] (p. 1005) as “if a firm attempts to differentiate products as ‘green’ or environmentally responsible while continuing to produce high levels of production waste and emissions, it would seem risky because stakeholders (e.g., regulators, environmental groups) could easily expose this anomaly, destroying the firm’s credibility and reputation”. This statement also warns the producers to integrate stakeholders’ expectations within a firm’s production by considering their production related to environmental performance. Hart [166
] has implicitly justified the relationship between stakeholder integration, process innovation, and sustainable innovation. This resonates with Ayuso et al. [50
], who has captured a direct relationship between internal and external stakeholder engagement and stimulating new ways and approaches to solving problems that contribute to the sustainable innovation orientation.
Stakeholder integration has a positive significant impact on sustainable innovation.
Stakeholder integration influences process innovation and thus has an impact on sustainable innovation.
According to above discussions, the research framework and hypotheses of this study is presented in the Figure 2