Intellectual capital, entrepreneurial orientation, and technical innovation in small and medium‐sized enterprises

Date01 April 2019
Published date01 April 2019
AuthorNick Bontis,Samer Eid Dahiyat,Dina Khalid Al‐Jinini
DOIhttp://doi.org/10.1002/kpm.1593
RESEARCH ARTICLE
Intellectual capital, entrepreneurial orientation, and technical
innovation in small and mediumsized enterprises
Dina Khalid AlJinini
1
|Samer Eid Dahiyat
2
|Nick Bontis
3
1
Master of Business Administration (MBA)
Graduate / Researcher, School of Business,
University of Jordan, Amman, Jordan
2
School of Business, The University of Jordan,
Amman, Jordan
3
DeGroote School of Business, McMaster
University, Hamilton, Ontario, Canada
Correspondence
Nick Bontis, DeGroote School of Business,
McMaster University, Hamilton, Ontario,
Canada.
Email: nbontis@mcmaster.ca
The purpose of this paper is to empirically investigate the effects of intellectual capital
(IC) on technical innovation (TI) and entrepreneurial orientation (EO) in small and
mediumsized enterprises (SMEs).
Hypotheses were tested using a survey data set of 464 questionnaires collected from
senior, middle, and functional managers, in addition to employees working in 63 SMEs
operating in Jordan.
The findings show that all IC dimensions have positive significant effects on bothTI as
well as EO. More specifically, human capital and relational capital emerged as having
the strongest effects on TI, whereas relational capital and human competence had the
strongest effects on EO. Interestingly, relational capital was the only IC dimension
that had a particularly strong and positive significant effect on both EO and TI. More-
over, all EO dimensions had positive significant effects on TI. As for the mediating
effect of EO, it was found to have quite a strong and partial mediating effect on
the relationship between each IC dimension (relational, structural, human, and human
competence) and TI. It was also noted that EO had a particularly strong partial medi-
ating effect on the relationship between structural capital and TI, as well as human
competence and TI.
Given the unique context within which SMEs are established and developed, in terms
of heavily investing in IC, as well as their supposedly entrepreneurial and innovative
nature, this study provides an original contribution to the TI literature.
1|INTRODUCTION
The business environment of the 21st century is increasingly being
characterized by uncertainty, hypercompetition and rapid technologi-
cal change, which has made the primary challenge faced by business
firms one of survival. Developing and sustaining superior competitive
advantage under such circumstances has proven to be a serious
challenge that is often associated with a fundamental prerequisite,
the capability to maintain uniqueness through innovation (Teece,
2007). In this context, firms have come to realize the crucial role that
innovation plays in rejuvenating an organization's competitiveness,
particularly technical innovation (TI), through the generation and
commercial exploitation of valueadded outputs, processes, and man-
agerial systems in the form of new or improved products, services,
managerial knowhow, and production/service delivery process
technology (Damanpour, 1991; Danish, Holbrook, Latif, & Shaheen,
2016). Moreover, and in light of today's knowledgebased economy,
firms' endeavors to heighten and sustain their competitiveness have
particularly focused on heavily investing in their intellectual capital
(IC), as it has been proven to play a key role in achieving a sustainable
competitive advantage (Serenko & Bontis, 2009; Serenko, 2010;
Khalique, Isa, Shaari, Abdul, & Ageel, 2011; Guthrie & Dumay, 2015).
Essentially, the concept of IC has come forth to emphasize the intan-
gible knowledgebased assets that firms develop, accumulate, and
utilize. These mainly take the form of human capital (HC), referring
to employees' knowledge, skills, experiences, capabilities, and know
how; organizational capital, referring to routines, processes, system
and databases, culture and philosophy; and relational capital (RC),
referring to interactions among an organization and its stakeholders
including the resulting networks of relationships (Edvinsson & Malone,
Received: 4 October 2018 Accepted: 4 December 2018
DOI: 10.1002/kpm.1593
Knowl Process Manag. 2019;26:6985. © 2019 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/kpm 69
1997; Bontis, 1998, 1999; Bontis, Chua Chong Keow, & Richardson,
2000; Sanchez & Olea, 2000; Andriessen, 2004; Youndt,
Subramaniam, & Snell, 2004; Subramaniam & Youndt, 2005; Seleim
& Khalil, 2011; Khalique et al., 2011; Danish et al., 2016; Dost, Badir,
Ali, & Tariq, 2016; Molodchik & Jardon, 2017; Ramadan, Dahiyat,
Bontis, & Aldalahmeh, 2017).
Following an organizational perspective, scholars have indicated
and found that IC influences firm innovative capabilities (Engelman,
Fracasso, Schmidt, & Zen, 2017; MartíndeCastro, DelgadoVerde,
LópezSáez, & NavasLópez, 2011; Rhee, Park, & Lee, 2010;
Subramaniam & Youndt, 2005). As such, a vital link has been
established between an organization's IC and its capacity to innovate.
Welldeveloped IC is closely associated with the promotion of
innovation, which is widely considered a knowledgedependent and
intensive process (Bontis, 1998; Garcia & Calantone, 2002; Darroch,
2005; Wang & Chang, 2005; Rehman, Rehman, & Sahid, 2011;
Dahiyat, 2015; Han & Li, 2015). Although the role of IC dimensions
in developing TI is emphasized and acknowledged in the academic
literature, it is argued in this paper that IC needs to be directed
towards perceiving, capturing, and seizing novel business opportuni-
ties, that is, entrepreneurial orientation (EO; Johnson, 2001). In this
way, the role, which IC plays in supporting TI is significantly enhanced.
In this context, EO is argued to play a vital mediating role in the effect
of IC on TI, in that it directs a firm's human, organizational, and RC
towards business development and gives its IC a business mindset
(Ergün, Bulut, Alpkan, & Çakar, 2004; Rauch, Wiklund, Lumpkin, &
Frese, 2009; Vora, Vora, & Polley, 2012). Essentially, EO reflects the
extent to which a firm is able to innovate, accept risk, compete aggres-
sively, and be proactive in exploiting opportunities (Covin, Green, &
Slevin, 2006; Dess & Lumpkin, 2005). As such, EO can enable the
organization to better exploit its IC in order to succeed at TI (Lee &
Lim, 2009).
The notions of innovation, IC and EO are particularly important in
the context of small and mediumsized enterprises (SMEs). SMEs often
confront characteristic challenges that mainly emanate from their
liability of newness, which include absence of an experience curve,
lack of financing, and difficulties in exploiting technology (Jones,
2013; Stevenson, 2010). These limitations can make SMEs vulnerable
when facing wellestablished larger organizations, which places the
emphasis more upon the need for distinguishing the value created
by them through developing a strong entrepreneurial culture that
promotes innovative performance, leading to competitiveness and
sustainability. In this context, SMEs are considered prime candidates
for the display of entrepreneurial as well as innovative attitudes and
practices, due to the crucial role that EO and innovation can play in
enhancing the ability of SMEs to achieve business sustainability and
growth, particularly in light of today's hypercompetitive dynamic
business environment. This is facilitated through the identification,
evaluation, and development of unexploited opportunities in the
marketplace, a main concern of entrepreneurship and a vital business
goal for both small and large firms (Zahra & Dess, 2001; Monteiro,
Soares, & Rua, 2017).
The prominent economic contribution provided by SMEs is
clearly evident in the case of Jordan, whose economy is almost
entirely made up of SMEs. SMEs account for roughly 40% of Jordan's
total nominal Gross Domestic Product (GDP), with small businesses
making up 98% of all operational companies in the kingdom. They
also provide employment for around 71% of workers based in the
private sector, according to OECD figures (Idris, 2016). Moreover,
SMEs in Jordan create more jobs annually than larger corporations
active in the country and, therefore, have a significant contribution
to Jordanian employment rate statistics (McConaghy, 2013). This is
consistent with the trend in the Middle East and North Africa (MENA)
region, in that SMEs are main source of private sector jobs in MENA,
in addition to their substantial impact on the MENA countries' GDP
(McConaghy, 2013). As such, SMEs are considered the backbone
and forefront of the modern enterprise sector in Jordan (Idris, 2016).
These statistics clearly demonstrate the importance of supporting
SMEs in Jordan.
As has already been mentioned that there has been a considerable
amount of academic research examining the direct effect of IC on TI,
the extant literature has shown a clear interconnectedness between
both constructs in numerous industries (e.g., Subramaniam & Youndt,
2005; Wu, Chang, & Chen, 2008; Marvel & Lumpkin, 2007; Schiuma
& Lerro, 2008; Rhee et al., 2010; MartíndeCastro et al., 2011; Seleim
& Khalil, 2011; AlKhalil, Dahiyat, & AlDalahmeh, 2014; Dost et al.,
2016; Danish et al., 2016; Engelman et al., 2017; Molodchik & Jardon,
2017; Mitrega, Forkmann, Zaefarian, & Henneberg, 2017). However,
this research program has generally not explored the existence of
other factors exerting a potentially mediating effect upon the relation-
ship between IC dimensions and TI. In particular, an important gap
exists in the literature when investigating the role of EO as a mediat-
ing factor influencing the relationship between IC and TI. Moreover, a
number of researchers have recommended conducting studies with
the aim of investigating the effect of EO on the organization's ability
to innovate, as it is considered one of the conditions for firms looking
for success and sustainability in dynamic business environments
(Saeed, Muffatto, & Yousafzai, 2014; Wiklund & Shepherd, 2003;
Wu et al., 2008). Based on the aforementioned observations on the
extant literature addressing this study's main constructs, there is a
need to further investigate the effect of IC's components on TI, by
examining the mediating effect of EO. Consequently, the aim of this
research is directed to fill the void that exists in the extant literature
by examining these phenomena within SMEs in Jordan.
2|RESEARCH THEORETICAL MODEL AND
HYPOTHESES DEVELOPMENT
2.1 |TI and IC
In an increasingly uncertain business environment that is character-
ized by dynamic changes in tech nology and customer expectations ,
innovation, knowledge, and IC have become essential drivers of
competitiveness and sustainability (Martínde Castro, 2015;
Ramadan et al., 2017). Organizations need to continuously identify
new business opportun ities and exploit them by being able t o
develop new products and services that attract new customers,
while keeping existi ng ones satisfied and loyal (Leskova rSpacapan
& Bastic, 2007; Talebi & Tajeddin, 2011. Given such a pervasive
70 ALJININI ET AL.

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