Strategic Flexibility and Organizational Performance: Mediating Role of Innovation

Abstract

Strategic flexibility is deemed to be an important organizational capability for enhancing innovation and improving organizational performance (OP) in uncertain, turbulent, and ever-changing business environments. Many studies have investigated the impact of strategic flexibility on innovation and OP in various contexts and found that strategic flexibility enhances innovation and improves OP. Other studies have found negative association or no association between strategic flexibility and OP. Therefore, it is not much clear whether strategic flexibility improves OP directly or through innovation. Especially, the mediating role of innovation in the association between strategic flexibility and OP in engineering project-based organizations has not been fully grabbed in prior literature and Pakistan remained unexplored. This study has strived to examine the mediating role of innovation in the association between strategic flexibility and OP in this context. Drawing upon resource based and dynamic capability views, an explanatory model was developed and tested by applying PLS-SEM higher order component modeling approach using sample data from 184 organizations in Pakistan. The results revealed that strategic flexibility is positively associated with innovation and OP. Innovation is positively associated with OP. The association between strategic flexibility and OP is partially mediated by innovation. The study promotes academic rigor and provides a new theoretical model. Mangers, decision-makers, and policy-makers can utilize the results to update their plans to achieve sustainable OP. The other organizations in various countries operating under similar conditions can also take the advantage of this study.