Frugal culture and sustainable performance in small and medium enterprises: The role of human resource appraisal and innovative behavior

Abstract

In view of the growing emphasis on purpose‐driven strategies and the scarcity of studies on their relationship with organizational outcomes, the present study aims to investigate the neglected impact of culture on a company's sustainable performance. In particular, it investigates the interplay between purpose‐giver (frugal culture), measures (HR appraisal), and method (frugal innovative behavior) in the path to a company's sustainable performance. Pakistan is an emerging market that faces both environmental challenges and resource constraints, and Pakistani SMEs constitute a major part of the businesses there, significantly contributing to Pakistan's gross domestic product. Because they do not view sustainability as a source of competitive advantage, this study uses data collected in three phases from 233 managers working in Pakistani SMEs. The partial least squares structural equation modeling analysis was conducted to verify the proposed relationships. The empirical evidence supported the direct and indirect effects of frugal culture on sustainable performance through frugal innovative behavior. However, this work nullifies the moderating impact of HR appraisal on the “frugal culture–frugal innovative behavior” relationship. This paper contributes to the sustainability literature and the corporate culture and HR appraisal theory, and it extends research on the antecedents of employee innovative behaviors. This study also contributes to the research methodology by proposing measurement scales for frugal culture, frugal innovative behavior, and HR appraisal directed toward employee frugal performance. It increases the knowledge about factors that stimulate a company's sustainable performance, informing SME owners about practices that are effective at spurring performance in their companies.