Leveraging dynamic capabilities to drive innovation and enhance business performance

Abstract

This study explores the critical role of dynamic capabilities in enhancing business performance among small and medium-sized enterprises (SMEs) in the café sector of Malang City, Indonesia. Specifically, it examines how dynamic capabilities influence both explorative and exploitative innovations and how these innovations, in turn, affect business performance. Using a quantitative approach, data were collected from 110 café owners through structured questionnaires. The results indicate that dynamic capabilities significantly impact both explorative and exploitative innovations. Explorative innovation, which involves the development of new products and the exploration of new markets, was found to have a substantial positive effect on business performance. Conversely, exploitative innovation, which focuses on refining and improving existing products and processes, showed a positive but less pronounced impact. The findings underscore the importance of dynamic capabilities in fostering innovation and improving business performance in a competitive environment. This study offers practical insights for café owners and entrepreneurs in the food and beverage sector, highlighting the need for continuous development of dynamic capabilities and a balanced approach to innovation. Future research is encouraged to expand on these findings by exploring additional factors and utilizing longitudinal data to capture the evolving nature of these relationships.