Product Innovation and SME Performance: The Roles of Strategic Orientations and IT Utilization in Batik SMEs

Abstract

This study explores how small and medium-sized enterprises (SMEs) in traditional cultural sectors—like Trusmi's batik industry—balance cultural preservation with market adaptation and digital transformation. Prior research often views market orientation, entrepreneurial orientation, and IT utilization as direct performance drivers, but their mechanisms—especially in culturally rooted industries—remain understudied. The research highlights product innovation as a critical intermediary, linking these three capabilities to performance. It examines whether IT enhances performance directly or indirectly by fostering innovation. A quantitative survey of 51 batik SMEs in Trusmi, analyzed using PLS-SEM (SmartPLS 4.0), finds that market orientation, entrepreneurial orientation, and IT utilization significantly boost product innovation, which in turn improves performance. Key findings include IT's negative direct effect on performance but a positive indirect effect through innovation, indicating inconsistent mediation. Theoretically, this extends the Resource-Based View and Dynamic Capabilities Perspective, showing IT's value lies in driving innovation. Practically, batik SMEs should integrate IT into customer value creation rather than adopting it passively. Ultimately, performance depends on SMEs' ability to convert resources—including IT—into innovations that align with market demands. The study emphasizes innovation'​s role as a bridge between capabilities and sustained success in culturally significant industries.