Impact of Internal Innovation on Firm performance with moderating role of collaborative innovation.

Abstract: Purpose: The study primarily aims to examine the effect of internal innovation in determining the firm performance for the textile industry of Pakistan by testing the research framework of innovation diffusion theory. Additionally, the study also explores the moderating role of collaborative innovation in explaining the relationship between internal innovation and a firm’s performance in the target population. Methodology: The study used a self-administrative questionnaire-based survey technique to collect data from the participants. Due to the prevailing Covid-19 pandemic situation globally, the data was collected online using the Convenience sampling approach. The outcome variable of the study was firm performance, while the explanatory variable is internal innovation, which is measured by product and process innovation. Additionally, collaborative innovation was used as the moderating variable of the study. The population of the study was the textile sector of Pakistan. The unit of analysis was managerial employees (at all levels) working in the textile industry of Pakistan. The online questionnaire was shared with approximately, 100 target people successfully and completely provided their unbiased responses using online means. The researchers analyzed the collected data using SPSS software. The analysis techniques include descriptive statistics, correlation, reliability analysis (using Cronbach alpha), convergent reliability & validity (using outer loadings, composite reliability, and average variance extracted), VIF, and regression for testing the hypotheses. Findings: The study found that product innovation and process innovation both serve as critical drivers for the firm performance in the textile industry of Pakistan. Moreover, collaborative innovation plays a complementary role as the significant moderator between the internal innovation process and the firm’s performance in the target population. The results concluded the acceptance and support of the required hypothesis of the study, including the acceptance of innovation diffusion theory for the textile industry of Pakistan, and finally the consistency of results with existing literature. Implications:  Contribution of Study: Existing literature lacks to provide the mechanism and understanding that how internal innovation (product innovation and process innovation) collaborative innovation shapes the effective and efficient performance of the firms in the textile industry of Pakistan. Therefore, the lack of research work and clarity in the existing literature makes this study meaningful. Moreover, the contributions of the study are multifaceted as the first time this study is being conducted in an emerging economy Pakistan. Novelty: The findings of the study add the literature for the domain of innovation and performance, especially, in the case of the textile sector of Pakistan with the partially moderating impact of collaborative innovation. The study also contributes towards the acceptance of innovation diffusion theory in the textile industry of Pakistan. Limitations & Recommendations: The findings of the study apply to the Textile sector only due to the specific nature of their operations. The prospective researchers in this domain can consider further dimensions of innovations to examine their impact on a firm’s performance. Additionally, innovation performance can also be considered for future studies. Furthermore, cross-sector analysis can be performed for understanding how innovation works in different sectors.