Business model innovation and firm performance: Evidence from small and medium enterprises (SMEs), Tanzania

Aisia Zabdiel Lawuo

doi:10.51867/ajernet.7.1.125

Authors

Aisia Zabdiel Lawuo Tanzania Institute of Accountancy, Tanzania https://orcid.org/0009-0009-4037-0931

DOI:

https://doi.org/10.51867/ajernet.7.1.125

Keywords:

BMI, Business Model, Business Innovation, Firm Performance, SMEs, Tanzania

Abstract

To remain competitive in the current unpredictable business environment, companies need to identify creative ways to conduct business. Because it has become a practical strategy for attaining long-term outcomes, businesses are innovating their business models. However, there is still a need for empirical study on the relationship between business model innovation (BMI) and the success of small and medium-sized firms (SMEs) in Tanzania. The study used resource-based theory, dynamic capability theory, and firm growth theory to form its theoretical basis. A correlational and cross-sectional research design was used to examine the non-causal relationships among variables. To select the sample, stratified random sampling was used, resulting in 264 small and medium-sized enterprises being selected from a total population of 2703 in the designated areas. The study targeted a population of 2,703 small and medium enterprises (SMEs) in the Arusha, Dar es Salaam, Dodoma, Mbeya, and Tanga regions of Tanzania. Based on this, the minimum recommended sample size was calculated as 348 SMEs, which were selected from the same locations. To select the sample, stratified random sampling was used. This method was chosen due to the heterogeneity within the target population, ensuring that different subgroups were adequately represented. The data were collected from 264 service, manufacturing, garment & textile, metal & woodworks, construction, food & beverage, production, and publishing SMEs using structured questionnaires. We employed partial least square structural equation modeling (PLS-SEM) to analyze the collected data and test the hypotheses. Value proposition innovation (VPRI), value capture innovation (VCAI), and value creation innovation (VCRI) were all found to have a strong correlation with firm performance. Specifically, evaluated whether there was a significant correlation between the performance of SMEs and VPRI. The results demonstrated a favorable and significant correlation between VPRI and the SMEs' performance. Consequently, it was approved, and for each unit increase in VPRI, manufacturing SMEs' performance would rise by 0.217 standard deviation units. investigated whether there was a significant correlation between VCAI and SMEs' performance. The results demonstrated a robust and positive relationship between VCAI and SMEs' performance. As a result, it was supported, and for every unit change in VCAI, the SMEs' performance would change by 0.252 standard deviation units. Finally, evaluated whether there was a significant correlation between the performance of SMEs and VCRI. The results showed a positive and significant relationship between VCRI and SMEs' performance, supporting this. These results demonstrate that for every unit increase in VCRI, the performance of SMEs increases by 0.292 standard deviation units. Therefore, by rethinking their business strategies, companies can provide more value for their customers while also creating value for themselves. In conclusion, by increasing use value or decreasing exchange value with customers, firms can produce more value, beat competitors in the market, and improve their own worth. The study recommends that managers and executives should conduct a comprehensive assessment and use of business systems innovation to improve the performance of small and medium-sized enterprises. It also advises policymakers to conduct a policy review aimed at encouraging managers and executives to use this broad innovation approach and to support better outcomes for such enterprises.

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