The role of social capital and entrepreneurial orientation in innovation capability

Many researchers and practitioners believe that innovation is a key business process. It is also the competitive advantage in supporting organisational capability. This competitive advantage distinguishes the company to become unique and different from the others. It directs the company to be a success in the fluctuation of a dynamic market. To reach the competitive advantage, the company should manage the innovation capability. However, it is not easy to manage innovation capability. It needs the good configuration of resource and innovation capability. Many previous studies focused on tangible resources such as machine, technology, and financial can enable innovation. Then, the researchers realised that intangible resources have more advantages such as more valuable, unique, difficult to be imitated, and thus it can support competitive advantage. The mixed result from previous studies explains that intangible resource in the context of SME's could be the driver or hinder of innovation capability inspired the researcher to identify what kind of intangible resource could affect innovation capability and how does it affect innovation capability. Some gaps attained from literature review sections such as (1) the limited study focused more in effect between intellectual capital and innovation capability in developing country; and (2) the limited study was investigating the additional of mediating variable in bolstering innovation capability. In this case, the researcher found the advantage of entrepreneurial orientation (risk-taking, proactiveness, and openness) as the organisational behaviour which can support innovation capability. Based on the gaps found, the researcher builds the conceptual model upon the theory of resource-based view and innovation management literature. This study fills this gap by conducting an empirical study in the context of ICT-SMEs in developing country, i.e., Indonesia. This research tests the hypothesis based on the empirical study which collected the primary data, i.e., 297 respondents from 132 Information and Communication Technology of Small and Medium Entreprises (ICT-SME) in Indonesia. In addition, this research analyses the primary data by using statistical analyses, i.e., Confirmatory Factor Analysis (CFA), Exploratory Factor Analysis (EFA) and Structural Equation Modelling (SEM). The findings indicate that human capital could improve radical as well as incremental innovation capability whereas social capital could reduce radical as well as incremental innovation capability. When SMEs have entrepreneurial orientation, their human capital will enhance their radical and incremental innovation. On the other hand, SMEs' entrepreneurial orientation with openness in working with others reduces the relationship between social capital and radical/incremental innovation capability. The differences in the findings may be because of the influence of national culture. Since the culture can interpret the behavioural preference of individual or team in the organisation such as entrepreneurial behaviour (Hayton et al., 2002), the researcher evaluates the pros and cons among the findings by using Hofstede Model.Many researchers and practitioners believe that innovation is a key business process. It is also the competitive advantage in supporting organisational capability. This competitive advantage distinguishes the company to become unique and different from the others. It directs the company to be a success in the fluctuation of a dynamic market. To reach the competitive advantage, the company should manage the innovation capability. However, it is not easy to manage innovation capability. It needs the good configuration of resource and innovation capability. Many previous studies focused on tangible resources such as machine, technology, and financial can enable innovation. Then, the researchers realised that intangible resources have more advantages such as more valuable, unique, difficult to be imitated, and thus it can support competitive advantage. The mixed result from previous studies explains that intangible resource in the context of SME's could be the driver or hinder of innovation capability inspired the researcher to identify what kind of intangible resource could affect innovation capability and how does it affect innovation capability. Some gaps attained from literature review sections such as (1) the limited study focused more in effect between intellectual capital and innovation capability in developing country; and (2) the limited study was investigating the additional of mediating variable in bolstering innovation capability. In this case, the researcher found the advantage of entrepreneurial orientation (risk-taking, proactiveness, and openness) as the organisational behaviour which can support innovation capability. Based on the gaps found, the researcher builds the conceptual model upon the theory of resource-based view and innovation management literature. This study fills this gap by conducting an empirical study in the context of ICT-SMEs in developing country, i.e., Indonesia. This research tests the hypothesis based on the empirical study which collected the primary data, i.e., 297 respondents from 132 Information and Communication Technology of Small and Medium Entreprises (ICT-SME) in Indonesia. In addition, this research analyses the primary data by using statistical analyses, i.e., Confirmatory Factor Analysis (CFA), Exploratory Factor Analysis (EFA) and Structural Equation Modelling (SEM). The findings indicate that human capital could improve radical as well as incremental innovation capability whereas social capital could reduce radical as well as incremental innovation capability. When SMEs have entrepreneurial orientation, their human capital will enhance their radical and incremental innovation. On the other hand, SMEs' entrepreneurial orientation with openness in working with others reduces the relationship between social capital and radical/incremental innovation capability. The differences in the findings may be because of the influence of national culture. Since the culture can interpret the behavioural preference of individual or team in the organisation such as entrepreneurial behaviour (Hayton et al., 2002), the researcher evaluates the pros and cons among the findings by using Hofstede Model