Innovation, firms’ performance and environmental turbulence: is there a moderator or mediator?

The purpose of this paper is to draw on dynamic capability view and contingency theory to clarify the nature of the effect of environmental turbulence on the relationships between firm’s both product and process innovations and business performance.

The authors developed and empirically tested two structural models using structural equation modeling approach. The first model deals with both product and process innovations as the mediators between environmental turbulence and business performance. The second model considers the moderating effect of environmental turbulence between innovation and business performance.

The findings show that environmental turbulence does not moderate the relationship between innovation and business performance. The authors have found a clear role of environmental turbulence in boosting innovation rather than moderating the relationship between innovation and performance.

The data set is a cross-section of heterogeneous firms regarding the industry.

Managers should be aware of the importance of the innovation for the environmental turbulence and dynamism counteracting. The results imply a negative influence of environmental turbulence on business performance. However, with the innovation in the equation, this influence can be positive, because it boosts firms to innovate and though to achieve better business performance.

It contributes the management and innovation research and practice through offering insights into the role of environmental turbulence in product innovation, process innovation as well as organizational business performance through comprehensive analysis of mediation and moderation effects between the observed constructs.