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E-business, organizational innovation and firm performance in

manufacturing SMEs: an empirical study in Spain

Article in Technological and Economic Development of Economy · September 2015

DOI: 10.3846/20294913.2015.1074126

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 TECHNOLOGICAL AND ECONOMIC DEVELOPMENT OF ECONOMY
ISSN 2029-4913 / eISSN 2029-4921

2016 Volume 22(6): 885–904

doi:10.3846/20294913.2015.1074126

E-BUSINESS, ORGANIZATIONAL INNOVATION

AND FIRM PERFORMANCE IN MANUFACTURING SMES:
AN EMPIRICAL STUDY IN SPAIN

Pedro SOTO-ACOSTAa, Simona POPAa, Daniel PALACIOS-MARQUÉSb

aDepartmentof Management and Finance, University of Murcia,
Campus de Espinardo, 30100 Murcia, Spain
bDepartment of Business Administration, Polytechnic University of Valencia,

Camino Vera s/n, 46022 Valencia, Spain

Received 19 August 2014; accepted 16 May 2015

Abstract. This paper extends previous studies on the organizational impact of Internet technolo-
gies by analyzing factors affecting e-business use and its effect on organizational innovation in
manufacturing Small and Medium-Size Enterprises (SMEs). In addition, the mediating effect of
organizational innovation on the relationship between e-business and firm performance is analyzed.
Grounded in the Technology-Organization-Environment (TOE) theory and the Knowledge-Based
View (KBV), this paper develops an integrative research model which analyzes those relations using
partial least squares (PLS) structural equation modeling on a dataset of 175 Spanish manufacturing
SMEs. Results suggest that e-business use emerges from technological and internal organizational
resources rather than from external pressure. In addition, results show that e-business use contrib-
utes positively to firm performance through organizational innovation.

Keywords: e-business, organizational innovation, firm performance, manufacturing, SMEs,

TOE framework, knowledge-based view, SEM, PLS.

JEL Classification: L250, M150, O140, O310.

Introduction

The current economic context, characterised by the acceleration of technological change,

globalization and competitive intensity, has put increasing pressure upon the management
of small and medium-size enterprises (SMEs), especially manufacturing SMEs which must
today compete globally (Lopez-Nicolas, Soto-Acosta 2010; Raymond et al. 2005). The im-
portance of manufacturing SMEs for economic growth, employment and wealth creation
has been widely acknowledged (Devaraj et al. 2007; Jardim-Goncalves et al. 2012). For

Corresponding author Pedro Soto-Acosta

E-mail: [email protected]

Copyright © 2016 Vilnius Gediminas Technical University (VGTU) Press

http://www.tandfonline.com/TTED
886 P. Soto-Acosta et al. E-business, organizational innovation and firm performance ...

instance, in Europe, SMEs represent over 80% of the total number of firms within the
manufacturing sector, accounting for around 60% of the employment (European Com-
mision 2013).
With the technological revolution brought by the Internet, manufacturing firms are
migrating toward e-business technologies in order to lower their operating costs, raise pro-
ductivity and quality, and respond rapidly to their customers’ and other business partners’
requirements (Jardim-Goncalves et al. 2012; Raymond et al. 2005). As a result, effective
adoption and use of e-business technologies have become major management concerns
(Soto-Acosta, Meroño-Cerdan 2008; Meroño-Cerdan et al. 2008b). Moreover, although
businesses have extensively adopted e-business technologies, actual use is an important link
to business value and such a link has been found to be especially lacking in SMEs (Devaraj,
Kohli 2003). However, studies in the literature tend to examine e-business in large business-
es, with very few recent studies analyzing SMEs (e.g. Chan et al. 2012; Chong et al. 2009),
while it is even less common to find studies analyzing e-business use in manufacturing
SMEs (Raymond et al. 2005).
Furthermore, although recent works are starting to analyze the adoption and use of
e-business within organizations and how these technologies support specific business pro-
cesses, much of the existing research focuses on a single view of e-business use (Gu et al.
2012; Soto Acosta et al. 2014a, 2014b), with very few studies examining the use of e-busi-
ness along the whole value chain. Thus, it is important to understand the key factors that
facilitate and motivate the use of e-business along the value chain within manufacturing
SMEs. Competitive pressure has been defined in various studies as a key determinant of
firm’s readiness to accept new technology (Bayo-Moriones, Lera-Lopez 2007; Sila 2013;
Teo et al. 2006). At the same time, the literature considers that technological factors are
important drivers for the adoption and implementation of IT innovations (Aboelmaged
2014; Acker 2014; Palacios-Marqués et al. 2015; Ramdani et al. 2013). However, beyond
technological and the environmental factors, research has recognized the importance of
organizational factors in influencing Internet technologies adoption and use (Aboelmaged
2014; Gu et al. 2012; Kim et al. 2011; Lian et al. 2014; Sila 2013). Organizational factors
may restrict or facilitate the implementation and usage of Internet technologies. In this
sense, the literature suggests that organizational human resource (HR) practices that create
a commitment-based environment influence the interactions, behaviours and motivation
of employees (Collins, Smith 2006). HR practices may therefore affect the organizational
social climate which motivates employees to work together and collaborate by being organ-
izational enablers of technology use (Soto Acosta et al. 2014a) Moreover, although there is
recent research analyzing the relationship between e-business and organizational innova-
tion and the relationship between e-business and firm performance (e.g. Bordonaba-Juste
et al. 2012; Lucia-Palacios et al. 2014; Zhu, Kraemer 2005), to the best of our knowledge,
no research has analyzed whether and how different factors promote or hinder e-business
use in manufacturing SMEs and the effect of e-business use on organizational innovation
and performance in a single integrative model.
To respond to the above gaps in the literature, this paper develops a research mod-
el, grounded on the Technology-Organization-Environment (TOE) framework and the
Technological and Economic Development of Economy, 2016, 22(6): 885–904 887

Knowledge-Based View (KBV), to analyze the key factors that facilitate e-business use and
its effect on organizational innovation and firm performance within manufacturing SMEs.
The paper consists of six sections and is structured as follows: The next section presents the
literature review and hypotheses. Following that, the methodology used for sample selec-
tion and data collection is discussed. Then, data analysis and results are examined. Finally,
the paper ends with a discussion of research findings, limitations and concluding remarks.

1. Theoretical background and hypotheses

The technology-organization-environment (TOE) framework (Tornatzky, Fleischer 1990)

has been extensively used as the theoretical framework to analyze factors which affect
the adoption and use of different e-business technologies including: a) cloud computing
(e.g. Hsu et al. 2014; Lian et al. 2014); b) collaborative technologies (eg. Chan et al. 2012),
c) mobile commerce (e.g. San Martín et al. 2012); and d) enterprise resource planning (e.g.
Bradford et al. 2014; Zhu et al. 2010). The TOE framework has also emerged as the main
theoretical framework to analyze the different factors which affect the adoption and use
of e-business at the firm level of analysis (e.g. Bordonaba-Juste et al. 2012; Lucia-Palacios
et al. 2014). The TOE framework conceives the context of adoption and implementation
of technological innovations as consisting of three factors: the technological context, the
organizational context and the environmental context. The technological context refers to
the characteristics of the technological innovation, the organizational context describes
characteristics of the organizations, and the environmental context implies characteristics
of the environment in which the adopting organizations operate (Tornatzky, Fleischer 1990;
Thong 1999). Thus, drawing upon literature analyzing e-business adoption and use, this
paper, based on the TOE framework, analyzes the factors that influence e-business use.
The Knowledge-Based View (KBV) regards knowledge as the most strategic resource of
a firm and argues that, because it consists heterogeneous knowledge bases and capabilities,
it is usually difficult to imitate and socially complex and, therefore, with potential to ge­
nerate sustained competitive advantage and superior corporate performance (Grant 1996,
2002; Kogut, Zander 1992; Nickerson, Zenger 2004). The KBV is in reality an extension
of the Resource-Based View (RBV). The RBV has become a standard to explain why firms
in the same industry vary systematically in performance over time (Hoopes et al. 2003).
This suggests that the effects of individual, firm-specific resources on performance can be
significant (Mahoney, Pandian 1992). The RBV generally tends to define resources broadly
and includes assets, infrastructure, skills, and so on. In this regard, it is based on two un-
derlying assertions: resource heterogeneity and resource immobility. Resources possessed
by competing firms are heterogeneously distributed and may be a source of competitive
advantage when they are valuable, rare, difficult to imitate, and not substitutable by other
resources (Barney 1991). At the same time, resources are a source of sustained competitive
advantage, that is, differences may be long lasting (resource immobility) when protected by
barriers to imitation (Mahoney, Pandian 1992) or isolating mechanisms such as time-com-
pression diseconomies, historical uniqueness, embeddedness and causal ambiguity (Barney
1991; Peteraf 1993). Physical technology is by itself typically imitable and, thus, such tools
888 P. Soto-Acosta et al. E-business, organizational innovation and firm performance ...

should not be a source of competitive advantage (Barney 1991). However, as argued by

Soto-Acosta, Meroño-Cerdan (2008: 51) “the combination of Internet resources and other
valued corporate resources, and their integration in the organizational processes, may lead
to better firm performance”. Thus, this paper, from a knowledge-based perspective, studies
the relationship between e-business use, organizational innovation and firm performance
as well as the mediating effect of organizational innovation on the relationship between
e-business and firm performance.

1.1. TOE framework and e-business

E-business technology is today widely spread among organizations. In this scenario, In-
formation Technology (IT) integration plays a pivotal role in supporting organizational
e-business processes and, thus, the extent of e-business use depends on firms’ IS inte-
gration. Technology integration refers to a firm ability to effectively transform common
technologies into capabilities (Soto-Acosta, Meroño-Cerdan 2008). Information Systems
(IS) integration has been found significant in studies using the TOE framework (e.g. Zhu
et al. 2006; Zhu, Kraemer 2005). IT integration in the e-business context is conceptua­
lized as front-end integration and back-end integration (Zhu et al. 2004). Front-end and
back-end integration are built on common Internet technologies in use (intranet, website
and extranet...) and are important antecedents of e-business since they enable communica-
tions, collaboration and the automation of business processes. IS integration is key for e-
business within manufacturing firms because they require the streamline of data along the
value chain (e.g. manufacturing and inventory systems of the firm and their suppliers and
customers) (Zhu et al. 2006). Therefore, IS integration may be an important technological
issue to explain the extent of e-business use within manufacturing SMEs. The following
hypotheses incorporate our expectations:
Hypothesis 1: There is a positive relationship between IS integration and the extent of e-
business use.
Technology enablers are a necessary but not sufficient condition for employees to co­
llaborate through e-business technologies. E-collaboration happens when units and mem-
bers interact electronically, promoting new understanding (Alavi, Leidner 2001). It is
therefore essential for the firm to develop interaction networks (Lee, Kim 2014). However,
besides technology applications, employees need to be willing to collaborate and share
knowledge (Shi 2013). Social exchange theory argues that employees balance their level of
commitment with the company’s level of commitment to them (Wayne et al. 1997). Thus,
building a positive social climate may be crucial to motivate employees to work together
through electronic networks (Valkokari et al. 2012) and increase e-business use for collabo-
ration and knowledge sharing. This is even more crucial when exchanging tacit knowledge,
which requires more interaction (Fox 2000). The literature distinguishes between transac-
tion-based HR practices, which focus on individual short-term exchange relationships, and
commitment-based HR practices, which emphasize mutual long-term exchange relation-
ships (Palacios-Marqués et al. 2015; Tsui et al. 1997). As a consequence, recent research
has found that commitment-based HR practices are determinants of knowledge sharing
Technological and Economic Development of Economy, 2016, 22(6): 885–904 889

through web and web 2.0 technologies (Soto Acosta et al. 2014a, 2014b). Based on this
discussion, the following hypothesis is proposed:
Hypothesis 2: There is a positive relationship between Commitment-based HR practices
and the extent of e-business use.
Competition intensity has been found to be an important driver of Internet technolo-
gies adoption so as to remain competitive (Chong et al. 2009; Wang et al. 2010; Zhu et al.
2003, 2006). In this sense, studies have found that horizontal competition drives organiza-
tions to adopt e-business (Del Aguila-Obraz, Padilla-Melendez 2008; Wang, Ahmed 2009).
However, research (e.g. Chan et al. 2012; Zhu et al. 2006) has also shown that horizontal
competition may deter firms from using Internet technologies, so challenging the tradition-
al wisdom about competition and innovation diffusion. Zhu et al. (2006) found a positive
relation between horizontal competition and e-business adoption, but a negative relation
between horizontal competition and the extent of e-business use. Similarly, Chan et al.
(2012) found that competition intensity is negatively related to the extent of e-collabora-
tion use in SMEs. Thus, e-business use is less tied to horizontal competition intensity than
initially thought in both large and small business. In fact, too much competitive pressure
leads firms to change rapidly from one technology to another without sufficient time to
make the most of technology, since that continuous change may impede firms from learn-
ing how to use existing technological applications effectively (Zhu et al. 2006). Moreover,
horizontal competition does not merely come from existing competitors in an industry
but also from substitutes (Porter 1985). This discussion leads to the following hypothesis
regarding horizontal competition and the extent of e-business use:
Hypothesis 3: There is a negative relationship between horizontal competition and the
extent of e-business use.

1.2. E-business, organizational innovation and firm performance

Defining the concept of innovation is not straightforward because this subject has been
studied from different approaches: technological, organizational, administrative, etc. How-
ever, there seems to be a consensus to treat innovation as new knowledge and ideas trans-
formed into new products and/or services, new technologies, new processes and new or-
ganizational forms or structures (Damanpour 1991; He, Wong 2004). For long time there
has been extensive theoretical argumentation concerning the capabilities of IT to drive
significant innovations in business processes, products and services of firms, and through
them result in big improvements of their business performance (Bresnahan et al. 2002;
García-Peñalvo et al. 2011; Soto-Acosta et al. 2011). Moreover, the ability to innovate,
especially in dynamic environments, results from the collective ability of employees to
share and combine knowledge (Nahapiet, Goshal 1998). In this sense, there are a number
of studies that link innovation to inter-functional coordination and the use of networks
(Darroch 2005; Ramayah et al. 2014; Soto-Acosta et al. 2014a). Firms are using more and
more collaborative technologies (shared databases, repositories, discussion forums, work-
flow...) for the execution of the innovation process (Meroño-Cerdan et al. 2008a). As a
consequence, Meroño-Cerdan et al. (2008b) found that most collaborative technologies
890 P. Soto-Acosta et al. E-business, organizational innovation and firm performance ...

are positively related to innovation in SMEs. Similarly, other Internet technologies can be
used for knowledge sharing such as the extranet and the web site, for instance, with cus-
tomers and suppliers (Soto-Acosta et al. 2014a). Thus, Internet technologies can be used
to distribute and share individual experience and innovation throughout the organization
(Bhatt et al. 2005; Soto-Acosta et al. 2010) and offer the chance of applying knowledge for
the creation of new products and/or services or processes. Moreover, these technologies
facilitate the formation of virtual teams to execute the innovation process with users and
partners from remote places (Adamides, Karacapilidis 2006; Kessler 2003). In sum, the
benefits from e-business use, which include efficient information and knowledge sharing
as well as working with no distance limitations, are expected to be positively related to in-
novation. Thus, the following hypothesis is proposed:
Hypothesis 4: There is a positive relationship between the extent of e-business use and
organizational innovation.
Furthermore, research has found a positive link between certain Internet technolo-
gies (collaborative technologies, the website) and firm performance (e.g. Meroño-Cerdan
et al. 2008a; Meroño-Cerdan, Soto-Acosta 2005, 2007; Xin et al. 2014), while other studies
have found that Web knowledge sharing is an antecedent of innovation (Soto-Acosta et al.
2014). The ability to create new knowledge through Web knowledge sharing may enable
firms to improve firm performance through innovation. In this sense, there are also stu­
dies that have examined the importance of Internet technologies for knowledge creation
(e.g. Lopez-Nicolas, Soto-Acosta 2010) and the relationship between IT, knowledge ma­
nagement and firm performance (e.g. López-Nicolás, Meroño-Cerdán 2011; Pérez-López,
Alegre 2012), finding positive direct and indirect links between IT, knowledge manage-
ment and firm performance. Thus, organizational innovation may mediate the relationship
between the extent of e-business use and firm performance (see Fig. 1). The following
hypothesis is formulated:
Hypothesis 5: Organizational innovation mediates the relationship between the extent of
e-business use and firm performance.

Fig. 1. Research model

Technological and Economic Development of Economy, 2016, 22(6): 885–904 891

2. Research methodology

2.1. Data collection and sample

The organisations selected for this study are SMEs from Spain. Previous research in the
Spanish context (e.g., Meroño-Cerdan et al. 2008a, 2008b) suggested that using IT is crucial
for firms with at least 10 and over. To ensure a minimum firm complexity in which ITs may
be relevant, the population considered in this study was the set of all Spanish enterprises,
with at least 15 employees, located in the South-east of the country whose primary busi-
ness activity is manufacturing. Data collection was conducted in two stages: a pilot study
and a questionnaire were conducted. Five SMEs were randomly selected from a database
to pretest the questionnaires. Based on these responses and subsequent interviews with
participants in the pilot study, minor modifications were made to the questionnaire for the
next phase of data collection. Responses from these five pilot-study firms were not included
in the final sample.
The population considered in this study was the set of all Spanish enterprises, with at
least 15 employees, located in the southeast of the country whose primary business activity
is manufacturing. A total of 1291 were identified and contacted for participation. The survey
was administered in face-to-face interviews with to the CEO of the companies and the unit
of analysis for this study was the company. In total, 175 valid questionnaires were obtained,
yielding a response rate of 13.55 percent. The dataset was examined for potential bias in
terms of non-response by comparing the characteristics of early and late participants in the
sample. These comparisons did not reveal significant differences in terms of general char-
acteristic and model variables, suggesting that non-response did not cause any survey bias.

2.2. Measures

Measurement items were introduced on the basis of a careful literature review. The survey
questionnaire was originally designed in English as the key measures used in this study
were operationalized using already established instruments published in that language.
Scales were measured on a 5-point Likert scale with anchors from strongly disagree (1)
to strongly agree (5). We used the back-translation method to ensure the validity of the
translation (Brislin 1980). Existing scales were translated into Spanish and, where neces-
sary, slight wording changes were made to adapt the questions to the context of the study.
The research instrument was pretested with five different researchers and managers. Our
primary objective was to detect inadequate wording and facilitate the ease of administering
the instrument. The results from the pretest showed no particular bias, but some respon-
dents had trouble understanding certain items.
Variables were operationalized as multi-item constructs. The extent of e-business use
measured the use of e-business to conduct or support business process along the value
chain: product design, manufacturing, logistics, marketing/sales, after-sales service (Zhu,
Kraemer 2005; Zhu et al. 2006). IS integration assessed the extent to which the website
is connected with back-end information systems and databases, and the extent to which
company databases are linked to business partners’ systems and databases. Items for IS
892 P. Soto-Acosta et al. E-business, organizational innovation and firm performance ...

integration are based on Zhu et al. (2006). Horizontal competition was measured following
Porter’s (1985) conceptualization of horizontal competition: threat of existing competitors
and substitute products. Commitment-based HR practices were operationalized based on
Collins and Smith (2006), Delery and Doty (1996) and Youndt et al. (1996) as a second-or-
der single consisting of two dimensions: training support and employees interest (CHRP1)
and career plans and evaluation reporting (CHRP2). Organizational innovation was mea­
sured following items in previous studies (Antoncic, Hisrich 2001; Becheikh et al. 2006;
Soto-Acosta et al. 2014a) and represents firms’ emphasis on research and development
and new technological knowledge and ideas into new products and processes. Firm per-
formance was operationalized using items in previous works (Aragón-Correa et al. 2008;
Judge, Douglas 1998) through which respondents rated their organization’s performance
relative to others in the industry. Firm performance was operationalized as a single con-
struct made up of two dimensions: 1) financial performance; and 2) customer satisfaction
and customer perceived product quality. Perceptual measures of firm performance has been
previously used in the literature analyzing SMEs because objective data on the firm perfor-
mance of these firms are rarely available, largely because the owners are not legally required
to publish these data (Lubatkin et al. 2006). In addition, this approach was followed because
it is generally assumed that CEOs are knowledgeable informants, particularly with regard
to their firms’ performance. Moreover, evidence suggests that CEO self-reports of perfor-
mance significantly correlate with objective measures of firm performance (Chang, Hughes
2012; He, Wong 2004). The formulation and criteria for answering the questionnaire are
defined in the Appendix.

2.3. Common method variance

We used Structural Equation Modelling (SEM) for measurement validation and testing the
structural model. SEM is particularly useful for testing complex models and when research-
ers need to incorporate latent variables. More specifically, we opted to use SEM based on
Partial Least Squares (PLS) approach because the variance-based PLS method is preferable
to the covariance-based when sample sizes are small and it can incorporate both reflective
and formative measures (Chin et al. 2003). The general rule of thumb regarding appropriate
sample size when using PLS is to multiply by ten the number of indicators on the most
complex construct or the largest number of paths leading to a dependent construct in the
model. In the proposed model, the highest number of paths leading to a dependent variable
is four, while the number of indicators on the most complex is seven (Barclay et al. 1995).
Thus, according to this rule, the minimum sample size necessary would be 70. With 175
responses, the PLS analysis appears to have sufficient power.
Since we collected both independent and dependent variables simultaneously from the
same respondents, common method variance could be a concern in this study. The extent
of common method bias was assessed by using four different methods. First, the Harman’s
one-factor test was used by entering all the indicators into a principal components factor
analysis (Podsakoff, Organ 1986). Evidence for common method bias exists when a general
factor accounts for the majority of the covariance among all factors. With all indicators
Technological and Economic Development of Economy, 2016, 22(6): 885–904 893

entered, 7 factors were extracted. The variance explained ranged from 24% to 4%, indicat-
ing no substantial common method bias. Second, a partial correlation method was used
(Podsakoff, Organ 1986). The highest factor from the principal component factor analysis
was added to the Partial Least Square (PLS) model as a control variable on all dependent
variables. According to Podsakoff and Organ, this factor is assumed to “contain the best
approximation of the common method variance if is a general factor on which all variables
load” (Podsakoff, Organ 1986: 536). This factor did not produce a significant change in
variance explained in any of the three dependent variables, again suggesting no substantial
common method bias. Third, we used Lindell and Whitney’s (2001) method, which em-
ploys a theoretically unrelated construct (marker variable) to adjust the correlations among
the principal constructs. Diversity (Armstrong et al. 2010) was used as the marker variable.
Any high correlation among any of the items of the study’s principal constructs and social
cohesion would be an indication of common method bias, as diversity is weakly related
to the study’s principal constructs. Since the average correlation among diversity and the
principal constructs was r = 0.049, this test showed no evidence of common method bias.
Fourth, the correlation matrix (Table 1) did not indicate any highly correlated variables,
while evidence of common method bias usually results in extremely high correlations (r >
0.90) (Bagozzi et al. 1991). In summary, these tests suggest that common method bias is
not a serious threat in our study. Table 1 also provides an overview of the means, standard
deviations and correlations of the constructs.

Table 1. Descriptives statisticts and discriminant validity

Correlation matrix
Constructs Av Sd
(1) (2) (3) (4) (5) (6) (7) (8)
1. IS Integration 2.7 1.2 0.80
2. CHRP1 3.7 0.8 0.07 0.65
3. CHRP2 3.4 0.9 0.42** 0.30** 0.71
4. Competition 3.2 1.2 0.26** –0.03 0.17** n.a.
5. E-business U. 3.3 0.9 0.45** 0.16* 0.43** 0.16** 0.72
6. Innovation 3.5 0.9 0.06 0.33** 0.13* –0.02 0.28** 0.67
7. Firm Perf. 1 3.2 0.7 0.08 0.36** 0.22** 0.02 0.27** 0.29** 0.70
8. Firm Perf. 2 4.0 0.7 0.15 0.35** 0.33** 0.07 0.41** –0.37** 0.46** 0.8
Notes: Significance levels: p < 0.05*; p < 0.01**; A.V: Average Value; S.D. = Standard Deviation
n.a. AVE is not applicable to formative constructs. Diagonal values in bold represent the square
root of the AVE.

2.4. Instrument validation

Before testing the proposed model, it is necessary to verify the reliability and validity of the
measurement model (Barclay et al. 1995). Convergent validity of the scales is contingent
on the fulfillment of three criteria (Fornell, Larker 1981; Hair et al. 1998): (1) all indicator
loadings should exceed 0.65 (2) Composite Reliabilities (CR) should exceed 0.8; and (3) the
average variance extracted (AVE) for each construct should exceed 0.5. As Table 2 shows,
894 P. Soto-Acosta et al. E-business, organizational innovation and firm performance ...

all the indicator loadings are above the recommended threshold, the CR values range from
0.87 to 0.95, and the AVE ranges from 0.55 to 0.82. All three conditions for convergent
validity thus hold.
To evaluate discriminant validity, Fornell and Larker (1981) suggest that the square root
of the AVE of a latent variable should be greater that the correlations between the rest of the
latent variables. As Table 1 shows, discriminant validity holds for the model, as the square
root of the AVE for each construct is greater than the correlations between the variables
that form the construct. Furthermore, the Cronbach’s alpha values of all indicators should
exceed the recommended value of 0.6 (Nunnally 1967) and all our measurement items
noted in Table 2 exceed 0.6. Thus, overall measurement items have adequate item reliability.

Table 2. Reliability and convergent validity

Construct Item loadinga t-statistic Cronbach’s Alpha CR&AVE
IS integration
IS1 0.88 32.57 0.76 CR = 0.88
IS2 0.89 36.76 AVE = 0.80
CHRP1
HR1 0.79 20.51 0.82 CR = 0.88
HR2 0.85 33.22 AVE = 0.65
HR3 0.80 23.29
HR4 0.77 18.19
CHRP2
HR5 0.75 13.58 0.79 CR = 0.87
HR6 0.87 34.66 AVE = 0.71
HR7 0.89 45.64
Competitionb
HC1 0.40 3.16 na na
HC2 0.80 3.71
E-business use
EB1 0.82 24.79 0.90 CR = 0.92
EB2 0.87 34.75 AVE = 0.72
EB3 0.83 24.20
EB4 0.88 40.50
EB5 0.83 27.92
Organiz. innovation
OI1 0.85 29.20 0.87 CR = 0.90
OI2 0.83 26.34 AVE = 0.67
OI3 0.78 17.68
OI4 0.82 21.11
OI5 0.80 18.88
Firm Perf. 1
FP1 0.89 51.34 0.78 CR = 0.87
FP2 0.86 31.48 AVE = 0.70
FP3 0.75 16.16
Firm Perf. 2
FP4 0.90 54.66 0.74 CR = 0.88
FP5 0.87 31.07 AVE = 0.79
Notes: ap < 0.01; bformative construct; CR: Composite reliability; AVE: Average variance extracted
na. Cronbach’s Alpha, CR and AVE are not applicable to formative constructs.
Technological and Economic Development of Economy, 2016, 22(6): 885–904 895

3. Results

Prior to the hypotheses testing, cross validation (CV)-communality and -redundancy in-
dices assess the quality of the structural model. The mean of the CV-communality indi-
ces confirms the global quality of the structural model if the indices are positive for all
the blocks, taking into account the measurement model as a whole. In addition, the CV-
redundancy index offers a metric to evaluate the quality of each structural equation. This
index should be positive for all endogenous constructs (Tenenhaus et al. 2008). For this
study, since all the latent variables had positive values for cross validation (CV)-redundancy
and -com­munality indexes, the model demonstrated adequate predictive validity and fit.
After analyzing the quality of the structural equation, the next step is to test the relations
between all constructs. Consistent with Chin (1998), bootstrapping (500 subsamples) gen-
erates standard errors and t-values. Figure 2 displays the results of hypotheses H1 to H4,
showing the path coefficients along with their significance levels. The results of the statisti-
cal model offer support for H1, H2, and H4, and fail to corroborate H3. In addition, Fig-
ure 2 shows the results for hypothesis H5. A variable may be considered a mediator to the
extent to which it carries the influence of a given independent variable to a given dependent
variable. We conducted three tests to examine the mediating effect of organizational in-
novation: the Sobel test, the Aroian test, and the Goodman test. Accoding to MacKinnon
et al. (1995), the Sobel test and the Aroian test perform best with sample sizes greater than
50 or so. The three tests were all significant at the p < 0.05 level (Sobel test statistic: 3.11;
Aroian test statistic: 3.07; Goodman test statistic: 3.14) and, thus, corroborating the medi-
ating effect. Our finding supports a partial mediation effect of organizational innovation
between e-business use and firm performance since the effect of e-business use on firm
performance shrinks upon the addition of organizational innovation to the model. Thus,
results offer partial support for hypothesis H5.

Fig. 2. Results for the model

896 P. Soto-Acosta et al. E-business, organizational innovation and firm performance ...

Conclusions

This study, grounded in the TOE theory and the Knowledge-Based View (KBV), shed lights
on the factors that affect e-business use and its effect on organizational innovation and
firm performance within manufacturing SMEs. The empirical results reveal that factors
have differential effects. With regard to the technological context, a positive relationship
was found for the relationship between technology integration and the extent of e-business
use, being the strongest factor in our model. The first finding confirms existing research
(e.g. Zhu et al. 2006; Zhu, Kraemer 2005), which found that technology integration is
positively related to the extent of e-business use (Zhu et al. 2006) and positively associated
to e-business value (Zhu, Kraemer 2005). Regarding the organizational context, the effect
of commitment-based HR practices on the extent of e-business use was analyzed. Results
showed a positive relationship between these two constructs. This finding supports recent
studies which, though not focusing on the use of e-business along the value chain, found
that commitment-based HR practices were significantly related to the use of specific Web
technologies for knowledge sharing (Soto-Acosta et al. 2014a, 2014b). Thus, manufacturing
SMEs should focus on commitment-based HR practices, rather than on transaction-based
HR practices, in order to create a social climate which promotes the use of e-business.
With regard to the environmental context, a non-significant relationship was found be-
tween horizontal competition and the extent of e-business use. This finding does not sup-
port previous support which found that competition intensity is negatively related to the
extent of e-business use (Chan et al. 2012; Zhu et al. 2004, 2006) and positively associated
with e-business adoption (Del Aguila-Obra, Padilla-Melendez 2008; Wang, Ahmed 2009),
demonstrating that e-business use emerges from internal organizational and technological
resources rather than from external pressure within manufacturing SMEs.
Furthermore, results suggest a direct positive effect of e-business use on organizational
innovation. This finding supports existent literature which concludes that e-business ena-
bles and drives organizational innovation (Amit, Zott 2001; Meroño-Cerdán et al. 2008b;
Wu, Hisa 2004, 2008; Zwass 2003). Thus, e-business can be used to distribute and share
individual experience and innovation throughout the organization (Bhatt et al. 2005) and
offer the chance of applying knowledge for the creation of new products and/or services
or processes. In addition, e-business intelligence systems may help firms to continuously
improve their processes by monitoring the business activity and accessing data analytics
timely (Mayeh et al. 2014; Perez-Gonzalez et al. 2014; Vera-Baquero et al. 2013). In sum,
the benefits from e-business use, which include efficient information/knowledge sharing
and business data analysis as well as working with no distance limitations, are expected
to be positively related to innovation. Results also confirm that organizational innovation
mediates the relationship between the extent of e-business use and firm performance. This
finding supports existing literature suggesting positive direct and indirect links between IT
and firm performance (e.g. López-Nicolás, Meroño-Cerdán 2011; Meroño-Cerdán et al.
2008b; Meroño-Cerdan, Soto-Acosta 2007; Pérez-López, Alegre 2012). Thus, manufactur-
ing SMEs should achieve high levels of e-business use in order to obtain organizational
innovation which, in turn, may improve their firm performance.
Technological and Economic Development of Economy, 2016, 22(6): 885–904 897

As any other research, ours suffers from some limitations which can be addressed in
future research. First, the sample used was from Spain. It may be possible that the findings
could be extrapolated to other countries, since economic and technological development
in Spain is similar to other OECD Member countries. However, similar studies in different
countries are likely to show different results, especially when considering high IT advanced
countries such as the USA, Finland, and Canada. Thus, in future research, a sampling frame
that combines firms from different countries could be used in order to provide a more
international perspective on the subject. Second, the key informant method was used for
data collection. This method, while having its advantages, also suffers from the limitation
that the data reflects the opinions of one person. Future studies could consider research
designs that allow data collection from multiple respondents within an organization. Third,
developing solid instruments in the IT literature is still an ongoing procedure of develop-
ment, testing and refinement. Although reliability and validity were empirically tested in
our data set, further confirmatory studies are necessary to determine the external validity
of the results. Particularly, as discussed in the hypotheses section, competition constructs in
our study capture horizontal competition, which needs to be enriched in further research
to include vertical competition. Fourth, firm performance and organizational innovation
measures are subjective in the sense that they were based on Likert-scale responses pro-
vided by managers. Thus, it could also be interesting to include objective financial perfor-
mance and innovation data for measuring these constructs. In addition, future research
designs could consider different degrees of innovation (radical and incremental) as well as
other forms of innovation such as new business models. Fifth, this research takes a static,
cross-sectional picture of contextual factors affecting e-business use, which makes it diffi-
cult to address the issue of how contextual factors and their importance may change over
years. A longitudinal study could enrich the findings. These suggestions should be taken
into account in future studies to increase the validity of our findings.

Acknowledgements

The authors are very grateful for financial support from the Fundación Cajamurcia.

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APPENDIX

Measures
Information systems integration
IS1 Extent to which the website is electronically connected with back-end systems and
internal databases.
IS2 Extent to which company databases are electronically connected to that of business
partners’ (clients, suppliers...) systems and databases.

E-business use
EB1 Extent to which e-business technologies are used to conduct product design activities.
EB2 Extent to which e-business technologies are used to support manufacturing activities.
EB3 Extent to which e-business technologies are used to support marketing activities.
EB4 Extent to which e-business technologies are used to support product tracking and
distribution.
EB5 Extent to which e-business technologies are used to support procurement activities
and coordination with suppliers.

Commitment-based HR practices
HR1 Our company support employees willing to take further training.
HR 2 Our company helps employees achieving work-like balance.
HR 3 Training programmes are conducted on a regular basis.
HR 4 Employees’ interest are taken into account for decision-making.
HR 5 Our company has established career paths.
HR 6 Performance appraisals are conducted on a regular basis.
HR 7 Employees are informed about their performance appraisals.

Horizontal competition
HC1 Extent of rivalry among competitors in your industry.
HC2 Extent of threat from substitute products in your industry.
904 P. Soto-Acosta et al. E-business, organizational innovation and firm performance ...

Organizational innovation
OI1 Number of new or improved products launched to the market is above the average of
your industry.
OI2 Number of new or improved processes is above the average of your industry.
OI3 Top management at the company emphasizes the importance of research and develop-
ment.
OI4 New line of products have been introduced during the last five years.
OI5 Changes introduced in products during the last five years are very important.

Firm performance
FP1 Earnings growth is above that of your competitors.
FP2 Return on investment is above that of your competitors.
FP3 Market share is above that of your competitors.
FP4 Customer satisfaction is above that of your competitors.
FP5 Customer-perceived quality of your products is above that of your competitors.
Note. All items are rated on five-point Likert-type scales ranging from strongly disagree (1) to strongly
agree (5).

Pedro SOTO-ACOSTA is an Associate Professor of Management at the University of Murcia (Spain).

He attended Postgraduate Courses in Management at Harvard University (USA) and received his PhD
in MIS from University of Murcia. His work has been published in journals such as Behaviour & In-
formation Technology, Computers in Human Behavior, Enterprise Information Systems, European Journal
of Information Systems, European Management Journal, Information Research, International Journal of
Information Management, Information Systems Management, Journal of Business Research, Management
Decision and Online Information Review, among others. He is an Editorial Board Member and Associate
Editor for several international journals and Chairman of various international conferences.

Simona POPA holds a PhD in MIS from the Department of Management and Finance at the University
of Murcia, Spain. She received a BA in Accounting and data management from the University Alexan-
dru Ioan Cuza (Iasi, Romania), a Master’s in Business Research and a Master’s in Sociology Applied to
Research from University of Murcia (Spain). Her research interests are in the areas of eBusiness, Mana­
gement Information Systems, Human-Computer Interaction and Business Information Management.
Her work has been published in journals such as International Journal of Information Management,
Information Systems Management, Knowledge Management Research & Practice, Journal of Universal
Computer Science and Service Business, among others.

Daniel PALACIOS-MARQUÉS is Professor of Management at the Technical University of Valencia,

Spain. He has an MBA in Quality Management and Business Administration. He has published articles
in journals such as Tourism Management, Annals of Tourism Research, Small Business Economics,
Management Decision, International Journal of Technology Management, Cornell Quarterly Manage-
ment, Services Industries Journal, Service Business, International Entrepreneurship and Management
Journal, Journal of Knowledge Management, Human Resource Management, International Journal of
Project Management, Technological and Economic Development of Economy, among others. He has
been Editor of the book Connectivity and Knowledge Management in Virtual Organizations, Network-
ing and Developing Interactive Communications. Full editor of Globla Business Perspectives (published
by Kluwer/Springer).

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