Strategic Innovation, Competitive Advantage and Firm Performance : A Critical Review of Literature

Abstract

The key essential components of strategic innovation are creativity and ideation, market insights vision and strategy. Literature suggests that firms that encourage a culture of creativity and invention are more innovative and successful. A clear vision and strategy aligned with the overall business strategy that guides ideas and ensures adequate resource allocation is key towards strategic innovation. Considering the significant role of strategic innovation on firm performance, this conceptual study critically examined the empirical, conceptual and theoretical literature regarding the association between strategic innovation and performance of a firm. The study also scrutinized the mediating role of the competitive advantage on the relationship between strategic innovation and performance of a firm. This study finds that the empirical studies conducted so far have yielded contradictory outcomes. Some findings indicate a positive association between strategic innovation and the performance of a firm. Firms that view innovation through a systemic, ecosystem-based lens where partnerships, digital platforms, and stakeholder networks co-create value are better positioned to sustain long-term performance. On the contrary, some studies indicate that there is no significant impact of strategic innovation on firm performance, particularly in certain industries or contexts and in highly regulated industries suggesting that strategic innovation does not always lead to measurable firm performance. The study also finds that strategic innovation leads to competitive advantage by responding to customers’ needs, which in turn affects firm performance. The study concludes that while most of the literature indicates positive association between strategic innovation and firm performance, the relationship is influenced by other factors such as industries and market conditions. Future studies should employ longitudinal designs, and mixed method approaches to validate and deepen understanding of the mechanisms through which strategic innovation drives competitive advantage and firm performance.

Key words: Strategic Innovation, Competitive Advantage, Firm Performance.