Effects of dynamic capabilities, entrepreneurial management, transformational leadership and strategic improvisation on SMEs performance in the Kingdom of Bahrain

Since the middle of the 19th century, researchers have demonstrated a keen interest in firm-level performance. Firms demonstrating an average level of performance are viewed as being capable of creating value in a static environment and catering to certain societal needs. A higher level of performance suggests that a firm is able to thrive in a fast-paced environment and contribute more in terms of value-added. Such a firm is typically well-positioned to enhance technological advancement, as well as high quality employment and tax revenue generation. In fact, it produces value at unprecedented levels. It means that improved performance levels can facilitate expansion in employment and wealth and creation, in addition to opening up new sources of revenue. This stresses the need for policymakers and other stakeholders to pay greater attention to the enhancement of the performance level of firms. Evidently however, discourses on the desirability of improved firm performance have largely been confined to large firms that are usually equipped with established research and development arms, with little focus on small and medium-sized firms (SMEs). Nevertheless, awareness about the role of SMEs has steadily grown since the 2008 global financial crisis and the recent Covid-19 pandemic. This is because they account for more than 90 percent of business organizations across the world, and have a significant impact on recessions. In this recognition, the government of Bahrain launched the 2030 economic vision, with the SMEs sector as the cornerstone of this massive transformational plan. Despite the outstanding government support so far given to the country’s SMEs, however, their performance has remained consistently poor. Thus, this study was initiated to examine the effects of important factors from the field of strategic management (i.e., dynamic capabilities, entrepreneurial management, transformational leadership and strategic improvisation) on SMEs performance in Bahrain. This study proposes a promising theoretical framework that fulfills the research objective of helping SMEs to enhance their performance. The proposed framework is built around four well-established theories, namely Entrepreneurial Management Theory, Transformational Leadership Theory, Resource Based View and Dynamic Capabilities View. Primary data for this study was collected by means of 353 usable questionnaires administered to SMEs, which represent three sectorial sizes (micro, small and medium) across the six industrial domains in Bahrain (manufacturing, services, commercial, agricultural, tourism and real estate). The respondents are SMEs leaders of different educational backgrounds. The assembled data was subsequently analyzed through structural equation modelling, using the reputed statistical analysis software SMARTPLS. Findings from the hypotheses testing show that three of the predicting factors affect the performance of SMEs positively namely, dynamic capabilities, entrepreneurial management and strategic improvisation. The results also affirm that entrepreneurial management, transformational leadership and strategic improvisation are antecedents for the dynamic capabilities of SMEs. As well, dynamic capabilities exhibit positive mediating effect on the relationship between entrepreneurial management, transformational leadership, strategic improvisation, and SMEs performance. On the other hand, transformational leadership is shown not to exhibit a direct influence on SMEs performance, but only indirectly through the mediating role of dynamic capabilities. This study has a wide range of implications. It contributes to the body of existing knowledge and serves the interests of policymakers, as well as practitioners. It provides guidance on how to improve SMEs performance in today’s rapidly changing environment. From a managerial perspective, it provides recommendations on how to build the dynamic capabilities of SMEs and explains how the adoption of dynamic capabilities can enable these enterprises to transform different internal and external obstacles into profitable opportunities. Above all, the study emphasizes the importance of embracing the practices of dynamic capabilities, entrepreneurial management, transformational leadership and strategic improvisation in SMEs to protect them against the dilemmas of unpredictable environments and enable them attain a competitive edge. From a theoretical perspective, this study is just one of a handful of studies to investigate the performance of SMEs under the lens of the dynamic capabilities view (DCV), especially during the recent Covid-19 pandemic. It also among the few studies so far to examine the applicability of the processes of dynamic capabilities both as a prompting factor in SMEs and a mediator in the relationship between influencing factors (entrepreneurial management, transformational leadership, strategic improvisation), and the performance of SMEs. Lastly, this study incorporates both dimensions of performance namely, financial and non-financial, to address the calls made by many scholars in the existing literature for a better representation of the dependent variable.

Text 114050.pdf Download (1MB) Official URL or Download Paper: http://ethesis.upm.edu.my/id/eprint/18076

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