A Roadmap to Translate Innovative Work Behaviour into Firm Performance: The Case of Vietnamese ICT SMEs

In today’s rapidly changing and dynamic business landscape, the mantra “Innovate or perish” has served as a fundamental principle for business success. In this context, Information and Communication Technology (ICT) small and medium enterprises (SMEs) have focused strongly on innovation, especially employees’ innovative work behaviour (IWB), to drive business success. By prioritising employees’ IWB, ICT SMEs can tap into a rich reservoir of internal talent and knowledge, fostering bottom-up innovation that is responsive to market demands as well as being adaptable to evolving circumstances. However, some researchers argue that innovations are inherently associated with uncertainty and potential for failure, and relying solely on employees’ IWB is insufficient to secure superior firm performance. This raises an important question about the role of employees’ IWB on SME’s performance. However, there has been limited attention directed towards exploring the firm performance implication of employees’ IWB as well as the mechanisms and conditions translating this individual resource into firm performance. Grounded in the overarching perspective of the Resource-Based View (RBV) and enriched by complementary insights from the Dynamic Capabilities View (DCV) and the Contingency Theory, this study aims to examine the relationship between employees’ IWB and firm performance. Additionally, this study takes a further step by examining the mechanisms and conditions that influence this nexus. Specifically, this study investigates the role of organisational dynamic capabilities (DCs) and entrepreneurial orientation (EO) as mediators and transformational leadership (TL) as a moderator in the relationship between employees’ IWB and firm performance. To achieve these aims, the study employs an explanatory sequential mixed-method design, encompassing quantitative and qualitative phases. In the first quantitative phase, questionnaire survey data from 319 Vietnamese ICT SMEs’ managers was collected and analysed using Covariance-Based Structural Equation Modelling (CBSEM) to test the research model. Subsequently, in the qualitative phase, 26 individual in-depth interviews were conducted to provide deeper insights into the interesting findings that emerged during the initial statistical analysis and to expand on the findings from the quantitative data. Quantitative findings affirm that, although employees’ IWB does not have a direct influence on firm performance, it does have an indirect effect on firm performance through2 the sequential mediation of DCs and EO. Additionally, there is a nonsignificant moderating effect of TL on the relationship between employees’ IWB and firm performance. Qualitative data analysis further identifies four key reasons that might limit the effectiveness of employees’ IWB on firm performance, including a lack of resources, a lack of innovation implementation capabilities, misalignment with strategic orientation and an unsupportive organisational structure. Additionally, the qualitative results explain why the sequential effects of DCs and EO are important for linking employees’ IWB to firm performance, while the moderating role of TL is not significant in ICT SMEs. The qualitative study also proposes entrepreneurial leadership and innovation climate as potential moderators in the employees’ IWB–firm performance relationship. The study contributes to strategic management literature in several ways. First, the study contributes to the RBV by advocating for a shift beyond mere possession of individuallevel resources, emphasising their effective leverage to enhance firm performance. Specifically, the integration of micro-level employee innovation resources with macrolevel factors like DCs and EO is proposed as a promising direction to optimise employees’ IWB and improve firm performance. Second, the study adds to DCV by providing more insights into the role of DCs in an innovation process and firm performance. Accordingly, by highlighting the sequential mediating role of DCs and EO in linking employees’ IWB and firm performance, the study enriches our understanding of how DCs, when combined with other strategic factors, involve in an innovation process to influence firm performance. Finally, this study contributes to TL literature by revealing that the influence of TL on employees’ IWB and firm performance is not universally applicable but contingent upon specific contexts, prompting further investigation into the conditions under which TL can influence these relationships effectively. Practically, this study informs ICT SMEs’ managers about the potential barriers that might limit the effectiveness of employees’ IWB. By recognising these barriers, managers can devise customised strategies to overcome them and harness the innovative potential of non-managerial employees effectively, thereby enhancing the firm’s competitive advantages and overall performance. Additionally, the study provides a roadmap to translating employees’ IWB into firm performance by integrating strategic tools including DCs, EO, entrepreneurial leadership and innovation climate. Specific approaches to cultivate and nurture these strategic factors within the organisation are also recommended accordingly.<p></p>