Does Competitive Strategy Always Lead to Performance? Examining the Key Roles of Innovation and Competitive Intensity

Abstract

This study examines whether competitive strategy always translates into superior firm performance, placing innovation and competitive intensity at the centre of that question. Anchored in the resource-based view, the positioning school and the dynamic-capabilities perspective, it models competitive strategy as a driver of both innovation and performance, treats innovation as the mechanism that carries part of the strategy effect through to performance, and tests whether the strength of the innovation–performance link depends on competitive intensity. The study adopted a quantitative, explanatory design. Data were collected from 365 manager-owners of SMEs in the Greater Accra Region of Ghana using a seven-point questionnaire adapted from existing literature. Construct reliability ranged from 0.925 to 0.953 (Cronbach’s alpha), and multicollinearity was not a concern. Five hypotheses were tested using ordinary least squares regression, a bootstrapped mediation test and a moderated regression. Competitive strategy had a positive and significant effect on both firm performance and innovation; innovation had a strong positive effect on performance; innovation partially mediated the strategy–performance relationship; and competitive intensity did not significantly moderate the innovation–performance relationship. Thus, while competitive strategy is related to performance, that relationship is realised in SMEs substantially through innovation, and the returns to innovation are stable regardless of competitive pressure. Managers of SMEs should therefore treat innovation as the bridge between strategy and results, and policymakers should strengthen the innovation environment in which small firms operate.