1. Introduction
Small and medium-sized enterprises (SMEs) of any developing country are a key instrument in providing job opportunities and escalating economic growth. Likewise, in Pakistan, SMEs contribute more than 99% of the business, consisting of a major share in manufacturing exports (25%). The major portion of the country’s gross domestic product (GDP) (Approximately 40%) maintained through SMEs—and they share the 30% net exports—optimizes the value addition by 28% and provides a huge amount of employment opportunities [
1,
2]. SMEs create job opportunities, support innovation, minimize income differences and support industrializations. Hitherto, SMEs are considered as one of the major poverty reduction sources as they create employment opportunities for the highly sensitive cluster (i.e., low income) of the country [
3].
Recently, entrepreneurship has emerged as a critical contributor to economies, where entrepreneurial orientation is fundamental for success. Entrepreneurial orientation refers to the actions, procedures, policies, methods, decision-making strategies and practices within an organization, and supports entrepreneurial decisions in SMEs [
4]. The literature has fairly maintained that entrepreneurial orientation is significantly associated with innovation performance [
5,
6], and organizational commitment [
7] of firms. The firm’s innovation level depicts the entrepreneurial orientation of the firm [
8]. Many studies have elaborated the instrumental components of entrepreneurial orientation. For instance, Omerzel [
9] mentioned risk-taking, proactivity, aggressive competition, customer orientation and autonomy. Whereas, Jambulingam, Kathuria [
10] maintained six critical dimensions: reactiveness, innovativeness, aggressive competition, risk-taking, autonomy, and motivation as essential entrepreneurial orientation factors. Bringing it together, these emerging studies [
11,
12,
13,
14,
15,
16,
17], mainly recommended the use of three most cited dimensions of entrepreneurial orientation, namely innovativeness, means the willingness to support innovation, risk-taking for innovation [
10] and proactiveness, in seeking new opportunities to tackle market challenges and responding with innovative solutions [
18]. This present study is based on the foundational theory, which is the “resource-based view (RBV)” developed by Barney [
19]. RBV focuses on the resources as internal components of the organization and enhances the firm performance and competitiveness [
20]. The previous literature is indicative that RBV is closely related to entrepreneurial orientation and its innovation abilities by identifying novel ideas, risk-taking, and proactive skills that enhance the SMEs’ performance [
8].
Sriviboon [
21] suggested that technology adoption and innovation performance are critical for organizations’ success, which can be significantly predicted through entrepreneurial orientation [
22,
23]. According to Wu and Gong [
24], innovation performance consists of the firm’s indulgence in technology, development of economic and innovation goals and attaining them through technology evolution, proficient business policies and advanced research and development capabilities. Studies in the past have critically examined the process and product innovation (levels of innovation) and further suggested a comprehensive measurement scale, including five critical factors of innovation performance, such as the quantity of manufactured goods, technological methods, development feat ratio, industry response and usage of advanced technology in production processes [
25,
26]. Hence, SMEs must adopt entrepreneurial orientation characteristics to enhance their innovation performance [
22,
27,
28] and OC [
7,
29]. The present study concentrates on three characteristics of entrepreneurial orientation, “innovativeness, risk-taking and proactiveness” [
8].
Leaders play a vital role in adopting entrepreneurial orientation’s characteristics and positively influencing innovation performance and organizational commitment of SMEs. Literature has established that characteristics of transformational leadership, “including idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration”, significantly influence the innovation performance of SMEs [
30]. Few past studies also examined transformational leadership’s positive impacts on organizational commitment [
31,
32]. Tian, Shuja [
33] discussed that transformational leadership emphasizes practical issues, sets benchmarks, establishes understandings, shapes, and encourages attaining employees’ goal attaining behavior. Therefore, the present study projects the moderating role of transformational leadership among entrepreneurial orientation and organizational commitment. According to Lambert, Kelley [
34], organizational commitment refers to a positive relationship between the employees and firms, and affective commitment refers to a psychological connection with the firm [
35,
36]. Following the direct and indirect relationships among entrepreneurial orientation, innovation performance and organizational commitment, the mediation mechanism of organizational commitment between entrepreneurial orientation and innovation performance relationships is essential to explore. For instance, Freixanet, Braojos [
37] studied open innovation as mediation between international entrepreneurial orientation and innovation performance. Akbar, Bon [
38] found the mediating role of innovation (radical and incremental) between entrepreneurial orientation and innovation performance. However, there is an observable gap between the intervening role of organizational commitment among entrepreneurial orientation and innovation performance within the context of SMEs in developing economies.
Entrepreneurial orientation is critical for SMEs, because all SMEs are striving to survive in the industry and face fierce competition from the big players. To compete with the big firms and gain a competitive position in the industry, SMEs have to take risks to invest in innovative products and services, enter into new potential markets and take rigorous innovative interchanges. Additionally, SMEs need to innovate and be proactive in designating their strategic goals and practices to compete in the industry. Such objectives could only be achieved through the entrepreneurial orientation [
8,
39,
40]. Entrepreneurial orientation has the potential to heighten the level of organizational commitment to a large extent. Organizational commitment is essential to develop inner drive in employees to participate in innovation activities [
41,
42] and improve SMEs performance [
43,
44]. In addition, it is also vital to notice the role of the leadership support in enhancing the commitment level of employees. The literature advocates that transformational leadership is best suited to bring pivotal changes in employee behaviors and firm strategies to achieve a firm’s innovation performance goals [
45,
46]. Therefore, this study investigates the direct effects of entrepreneurial orientation on innovation performance and indirect effects of organizational commitment (mediating) and transformational leadership (moderating) on the relationships between entrepreneurial orientation and innovation performance.
The current study is a significant addition in the development of an inclusive mediating mechanism of organizational commitment on innovation performance using Resource-Based View as foundation theory. Few previous studies are relative to the context in terms of the moderating role of organizational commitment on innovation [
47], leaving intentions [
48], employee innovation and participative leadership [
49], leaders’ behavior, performance and job satisfaction [
50]. However, the present study advances the mediation model of organizational commitment among the relationship of entrepreneurial orientation and innovation performance in the context of the developing economy. Moreover, few past studies have examined transformational leadership’s moderation role on the correlation among entrepreneurial orientation and firm performance and entrepreneurial orientation and firm performance and effectiveness [
51]. However, transformational leadership’s moderating role in entrepreneurial orientation and organizational commitment relationships has rarely been explored in the past. This present study investigates the moderation effects of transformational leadership to fertilize the body of literature on chosen factors.
5. Discussion
The present study examined the mediating and moderating effects of organizational commitment and transformational leadership on innovation performance triggered by entrepreneurial orientation within the SMEs sector of a developing economy. In line with the past studies, entrepreneurial orientation positively affects organizational commitment [
7,
9,
59,
60], and entrepreneurial orientation significantly enhances innovation performance [
8,
61,
62,
63,
65,
68,
75] through risk-taking, innovativeness, and reactiveness. Moreover, the present study demonstrates the nature of the relationship among innovation performance and organizational commitment. Findings exhibit that belongingness and emotional affiliation enhances the commitment of employees to their firms. It is further verified that sense of belongingness and emotional attachment (organizational commitment), enhances SMEs’ innovation performance [
55,
72,
77,
78,
79].
In the modern world of fierce competition among SMEs, entrepreneurial orientation leads to the success of firms by enhancing their innovation performance. Particularly, firms need to maintain readiness to enhance innovation and experiments to launch innovative products and services in the market to meet performance standards by supporting the novelty of research and development of new processes. Firms’ abilities to take risks to enter into evolving markets by investing substantial resources enable them to innovate. In doing so, SMEs should look into new market opportunities by assessing future problems and preparing for needed change [
86]. Alongside the entrepreneurial orientation’s developmental role, organizational commitment plays a leading mediation role in SMEs’ entrepreneurial orientation and innovation performance. The emotional attachment and sense of belongingness of employees to remain with their firm enhance their affective commitment. The measure of organizational commitment also includes employees’ moral obligation of remaining with the firm for a longer duration, and not leaving the firm when offered a better job position elsewhere. Moreover, employees feel that a lot will change in their lives if they leave their current firms, and the level of difficulty for being detached from the current employer enhances their organizational commitment [
88]. It is hard for the employees to achieve goals of entrepreneurial orientation and higher levels of organizational commitment without the leadership of the firm. In this regard, transformational leadership provides a best-fit for enhancing the process of entrepreneurial orientation and organizational commitment towards innovation performance through providing compelling vision, assurance of goal attainment, inventive problem-solving, training and coaching and developing a strong sense of purpose [
89]. All these factors substantially help in improving the highly responsive attitude of firms concerning the product and services innovation, improvement in manufacturing processes and lowering the production costs [
87]. The present study examined the positive effects of all these critical characteristics on innovation performance.
The results indicate that organizational commitment has a decisive mediating effect between the relationships of entrepreneurial orientation and innovation performance. Findings indicate that entrepreneurial orientation enhances innovation performance significantly using RBV [
55]. The dimensions of organizational commitment, such as continuance, normative and affective commitment, enhance innovation performance. Moreover, the results indicate the combined effects of entrepreneurial orientation and organizational commitment on innovation performance. Additionally, this study uniquely examined the mediating role of organizational commitment between the relationship of entrepreneurial orientation and innovation performance [
55]. Third, this study focused on the moderating role of transformational leadership, based on its characteristics such as leader’s skills to design appealing visions, focus on goal setting and achievement, indulgence in coaching, training and development, creative problem-solving skills, and developing a complete sense of purpose [
89], enhancing the link between entrepreneurial orientation and organizational commitment [
7,
9,
52,
60] and innovation performance [
5,
8,
10,
18,
20,
22,
27,
28,
70,
75]. Aimed at examining the direct effects of transformational leadership on innovation performance [
82] and organizational commitment [
83], past studies suggested the increase in performance [
54,
80,
81]. The moderating role of transformational leadership on entrepreneurial orientation and innovation performance’s relation was found to be positive [
84]; therefore, this study examined the transformational leadership’s moderation mechanism on the relationship between entrepreneurial orientation and organizational commitment. Thus, the results concluded that a higher level of transformational leadership of SME managers enhances the relationship between entrepreneurial orientation and organizational commitment.
Finally, the study embedded RBV into transformational leadership, where transformational leaders or human assets represent SMEs’ tangible resources and leaders’ particular skills as intangible assets. Thus, both kinds of resources are essential to achieve the higher impacts of entrepreneurial orientation on organizational commitment through the moderation role of transformational leadership. On the other hand, organizational commitment also has a significant link with RBV. The effective, continuance and normative commitment of employees refer to the firms’ intangible resources, enhancing organizational commitment and, ultimately, the firms’ innovation performance. Additionally, RBV indulges the innovation process, where both process and product innovation heavily involve RBV. Innovation and innovation performance depend on the tangible (transformational leaders, technology and resources) and intangible resources (skills of transformational leaders, and level of commitment of employees) of the firms and rely on the interlinked mechanism such as EO effects on organizational commitment and innovation performance.
5.1. Theoretical Contributions
This study has several theoretical contributions. First, the findings contribute to the literature on entrepreneurial orientation. This study validates that dimensions of entrepreneurial orientation such as innovativeness (SMEs willingness to support innovative ideas, experiments for product and service development and novel research and development), risk-taking (risk-taking capability to enter new markets and investment on new ventures) and proactiveness (SMEs’ strive to explore new opportunities and pro-active approaches to issues, needs and changes) have a significant impact on organizational commitment [
7,
9,
52,
60] and innovation performance [
5,
8,
10,
18,
20,
22,
27,
28,
70,
75].
5.2. Practical and Managerial Implications
This study offers several practical and managerial implications based on entrepreneurial orientation’s impacts on the optimization of innovation performance. First, entrepreneurial orientation (innovativeness, proactiveness, and risk-taking) helps in achieving SMEs’ innovation milestones. The results show that human resource managers can utilize the entrepreneurial orientation’s characteristics to enhance the firm’s innovation performance while focusing on RBV philosophy [
8,
70]. Second, the firms should use risk-taking, innovativeness, and proactiveness to develop internal innovation performance strategies. Third, leaders should help their firms to practice these characteristics to enhance the firm’s innovation performance. Leaders should also critically assess the fact that innovative and proactive activities in the firm enhance the level of commitment within the SMEs; thus, they should practice it rigorously. Lastly, the managers should focus on transformational leadership’s vital role to optimize the effects of entrepreneurial orientation on organizational commitment with the help of transformational leadership skills such as developing a strong sense of purpose, coaching and training, and formulating compelling visions for their subordinates.
5.3. Limitations
Consistent with other research studies, the current study also has some limitations. We deliberately aimed at reducing common method bias using the time-lag data collection method, which averts the unprompted interventions. Future research should develop causal links through longitudinal research models. Being a developing country, SMEs in a developing economy generally avoid high risk-taking and proactive approaches towards uncertain situations. Future studies should measure the level of risk-taking capabilities of SMEs. Moreover, keeping in mind the large number of SMEs in Pakistan (600,000 services, 400,000 manufacturing and one million trade sector units [
112], future studies should enhance the sample size categorically to enhance the study scope. Finally, future studies may consider other types of leadership styles are moderators such as passive leadership [
113], parental leadership [
114] or servant leadership [
115].