The relationship between strategic orientation and firm performance : evidence from small and medium enterprises in Malaysia

Recent research in business and marketing has highlighted the importance of the concept of strategic orientation or ‘strategic directions implemented by a firm to create proper behaviours for the continuous superior performance of a business (Gatingnon and Xuereb 1997, p.78). This study seeks to determine if strategic orientation can help improve firm performance of Malaysian SMEs. Although, many types of strategic orientations have been discussed in the literature, this study chose three most comprehensive constructs that encompass significant actions targeting main areas in the operation of any business. These include; entrepreneurial orientation relating to the proactive leadership skills of the entrepreneur, market orientation directed to winning over and retaining customers with best marketing practices and interaction orientation focussed on customer relationship and management. This study applied quantitative method and used Structural Equation Modelling (SEM). As there has been some criticism that direct correlation of one particular strategic orientation to firm performance is prone to simplification, this study adopts a combination of these strategic orientations to present a holistic picture of the effect of strategic orientation on firm performance. This study also employs innovation success as mediating variable of the strategic orientation/ firm performance to present a more nuanced picture of this relationship by arguing that strategic orientation is able to deliver superior firm performance directly or indirectly by affecting innovation success. In addition, market turbulence (instability of customer preference) and competitive intensity (presence of aggressive competitors) are employed as antecedent variables on strategic orientation to reflect factors of external environment that can intervene in the actions of a firm