Innovation and organisational performance: A critical review of the instruments used to measure organisational performance

Abstract

<p><strong>Background:</strong> Innovation is recognised as one of the most important determinant of organisational performance. Yet, the results of studies that investigate the relationship between innovation and organisational performance are inconclusive. The inconsistency has been attributed to a number of factors, which include, among others, the measures used to evaluate organisational performance.</p><p><strong>Aim:</strong> This study was set out to identify, categorise and critically analyse the instruments used to assess organisational performance when investigating the relationship between innovation and organisational performance.</p><p><strong>Setting:</strong> The study focuses on all scientific publications reporting on organisational performance, inclusive of both financial and non-financial indicators of performance, and are not limited to any specific country or industry.</p><p><strong>Methods:</strong> The systematic literature review methodology was used to identify studies which investigated the relationship between innovation and organisational performance. Once identified, articles were analysed on the way organisational performance was measured. Classification was done with reference to financial and non-financial indicators, accounting and market-based, as well as objective and subjective measures.</p><p><strong>Results:</strong> The findings show that profitability, sales growth and return on assets (ROA) are the most preferred accounting-based financial measures of organisation performance. In addition, Tobin’s Q was found to be the most favoured market-based financial measure of organisational performance. The study further reveals that market share, customer satisfaction and productivity are the most popular non-financial-based measures of organisational performance.</p><p><strong>Conclusion:</strong> The use of measures of organisational performance is often left to the discussion of the researcher, which is not implicitly wrong, but does little to contribute to the body of knowledge on this important topic. Researchers are firstly urged to clearly define which aspects of organisational performance they intend to study, secondly to use established instruments or often used indicators of organisational performance, and thirdly to combine both objective and subjective measures of organisational performance. This would allow for researchers to build on the work of other and strengthen the body of knowledge in this area.</p>

Effect of Diversity Management on Organizational Performance of Information, Communication and Technology Firms in Nairobi County

“…This implies that a unit change in the levels of creativity and innovation results to an increase of 0.233 units in the performance of ICT firms in Nairobi County. The findings are consistent with Sethibe and Steyn (2016) who established that organizations that practice innovative and creative behavior generally exhibit superior organizational performance relative to organizations with less innovative behavior. The results of the coefficients of the model further shows that employee commitment has a positive and significant effects on the performance of ICT firms as shown by β = 0.397 and Sig = 0.001 <0.05.…”

Exploring the Development Strategies of Rural Small, Medium and Micro Enterprises

“…In light of the above, we propose a "holistic" conceptual model (approach) with four strategies as antecedents of firm growth (Figure 1). The independent variables include product development, market penetration, market development, and diversification, while the dependent variable is growth; measured in relation to perceived competitive edge, market share, profitability, customer base, productivity and customer satisfaction (Sethibe and Steyn, 2016). The relationship between these variables is mediated by factors such as prevailing economic conditions, government policies, and political environment.…”

“…Small business growth may imply a firm's success in the market, but it may have different outcomes (Chittithaworn, Islam, Keawchana and Yusuf, 2011). In the current study, business growth constitutes both financial pointers; namely, profit, market share (Blackburn, Hart and Wainwright, 2013;Simpson et al, 2012;Sethibe and Steyn, 2016), and "subjective measures" like customer satisfaction (Buli, 2017;Chong, 2008). Singh et al (2008, p. 535) observe that SMMEs mostly use subjective and self-reporting measures of performance, because the majority of SMMEs are privately owned and -as such -it is highly doubtful that the owners or managers will be willing to provide detailed accounting data about their business.…”

Leadership Style, Organizational Performance, and Change Through the Lens of Emotional Intelligence

“…Organizations' performance is desirable in all industries, particularly during change initiatives. Although research studies have been conducted to measure organizational performance using traditional variables involving innovation, return on investment, market penetration, and profit margins (Sethibe and Steyn, 2016), limited empirical data exist about unconventional variables to measure organizational performance. The Hartnell, Kinicki, Lambert, Fugate, and Doyle (2016) study addressing organizational performance included limited information about leadership effectiveness.…”