Effect of product innovation on SME’s performance: The moderating role of organizational learning and market orientation

This research was conducted to identify the determinants of SME's performance as well as look at the underlying conditional factors. Researchers examine the direct effect of product innovation on SME's performance and consider the moderating role of market orientation and organizational learning. Using the quantitative method, the researchers conducted a survey of 170 SME owners in DKI Jakarta Province who were selected using a purposive sampling method. This survey was conducted online by distributing questionnaires through an online platform. The data is then analyzed using Structural Equation Model with AMOS and Process by Hayes. The results of hypothesis testing show that product innovation has a positive effect on the performance of SMEs, and this effect will be stronger when SMEs have high market orientation and high organizational learning. This research can be used as a reference by owners or managers of SME to advance their businesses. SME need to innovate products and form a conducive climate in market-oriented organizations, as well as a climate that allows them to carry out organizational learning.


Introduction
Since it was first mentioned by McCarthy (1990) that, organizational success can be seen how the product or service is received by consumers. Several studies have stated that innovation factors related to new products or services can be a source of organizational strength in achieving better performance (Falahat, 2020a;Ramadani, 2019;Xie, 2020). According to Dabić (2019) Innovation is a process by which organizations create new products or services or improve existing products and services (Guiné, 2020;Liu, 2022). Guiné (2020) and Liu, (2022) states that in order for innovation to be carried out well, organizations must apply the concept of learning to gain knowledge and information. According to Tortorella (2020) most definitions of organizational learning emphasize the interaction between individual, group and organizational levels to gain knowledge. Thus, this knowledge and information can be used as a basis for business decisions. Organizations involved in the process of product or service innovation will have strength in facing competition (Battistelli, 2019;Jeong, 2019;Tu, 2021) Highly innovative new products offer companies valuable opportunities for growth and competitive advantage. Lee (2019) emphasizes the importance of innovation to company performance by focusing on product factors. In addition, the application of innovation is always associated with market orientation because it is seen as a series of processes in meeting consumer needs. Research conducted by Falahat (2020) and Ferrucci (2020) found that organizations with a market orientation can improve higher business performance than organizations with a low market orientation. Thus, organizations that can apply the concept of market orientation and create value will produce superior performance (P Iyer, 2019). Therefore, SME's and especially those in developing countries need to welcome the concept of market orientation and its application in their line of operations if they are to achieve good performance (Nakos, 2019). Pratono (2019) explains that market orientation is seen as the most efficient and effective in creating business advantage. However, its application in the context of market orientation SME's still receives less attention, considering that business in SME's only focuses on obtaining short-term profits. Meanwhile, the concept of market orientation is seen as the basis for 48 determining how a product or service can be accepted by customers. Thus, the need to understand this concept becomes important as a factor that can improve the performance of the SMEs itself. Guiné (2020) stated that innovative products have greater potential to increase productivity and have a direct relationship to business performance. Ferrucci (2020), Liu (2022), and Tajeddini, (2020) found changes in organizational processes and marketing innovation, respectively, have a significant positive impact on business performance. Therefore, it is important for SME's players, especially in the handicraft creative industry sector. SMEs in the growth sector is said to be very fast. Overall, in all economic sectors, the growth in the number of small and medium enterprises is so fast, especially in Indonesia. In Jakarta, one of the provinces in Indonesia, the number of small and medium enterprises is far greater than that of large companies, so that their presence can be found in every corner of the city. In general, the SME's industry is a factor that is expected by a country in encouraging economic growth, including the handicraft industry.
As stated by Prasanna (2019) most of the drivers of change, innovation and economic progress come from entrepreneurs who are able to take risks. Like other industries, the small and medium industry which operates in the creative sector cannot be separated from the problems that occur. When Covid-19 hit all countries, the amount of production fluctuated, as well as decreased consumer demand for aluminum and plastic materials. This requires small and medium business actors to apply concepts to market orientation and learning that can provide information about consumer desires so that they can innovate products in terms of colors, types, and models that can be developed. Therefore, this study aims to find out how the performance of SMEs in the craft industry sector can be improved by looking at the role of product innovation as well as organizational learning and market orientation as moderating variables. This research also fills in the gaps from previous researchers Dabić (2019), Falahat (2020), and Wu et al (2018) that the need for moderating variables in improving SME's performance as well as to investigate how organizations have good knowledge as a basis for improving business performance.

Literature Review Empirical Review and Hypothesis development Product innovation and SME's performance
Previous researchers have found a strong correlation between innovation and firm performance (Rajapathirana and Hui 2018). Several variables such as new product success, financial performance, and non-financial performance, have been used by researchers to assess the effects of any new changes in the organization, whether it be technological, strategic, social, etc. Tuan et al. (2016) found that product innovation support for company performance has a fairly strong correlation. Bustinza (2019) argues that product innovation is an effort made by organizations or business people to improve, improve, and develop existing products so that they can have new values. The success of a new product that can be accepted by consumers has a relationship to the company's performance. Thus, the existence of product innovation can increase the company's performance capacity (Frank, 2019;Ogbeibu, 2020). Currently, organizations are faced with strong competition with many of the same products/services on the market. Consequently, organizations need to continue to provide new products/services or improve existing ones as a competitive strategy amid increasingly massive business growth. In practice, organizations can work together with other business organizations and have an orientation to achieve better performance. Han & Zhang (2021) stated that innovation is the building block of the future for organizations, especially small and medium enterprises. This is because the growth of SME's is currently getting higher and there is no other way to compete except by providing products and services that are different from competitors (Haus-Reve, 2019; Lim, 2020). Organizations that do not innovate will be faced with poor performance or even failure (Snihur & Wiklund, 2019). Falahat, (2020), Han & Zhang (2021) states that the performance of SME's has a correlation with finance, production and marketing. When this is managed properly, growth and profits will increase. Therefore, profit, revenue, growth, productivity and new markets are used to measure the performance of SME's.

Organizational learning and market orientation as moderation variable
Some researchers have taken a resource-based view by emphasizing knowledge for organizations. In general, organizational learning is considered a prerequisite for innovation because it fosters the generation, assimilation, and implementation of new ideas (Kim, 2020). This can be done with a process that starts with identifying the knowledge needed and ends with implementation. Huber (1991) considers that organizational learning is a combination of four processes: acquisition, information, distribution of information, interpretation of information, and organizational memory (Jeong, 2019;Tortorella, 2020). According to Jung, K. B (2021) one of the factors that is generally used as the basis for organizational learning is organizational culture. This is because cultural values, beliefs, and assumptions can support or not support the learning process (DeLong & Fahey, 2000). Alegre, J & Chiva et al (2008) and Mbengue (2013) state that the concept of organizational learning is widely recognized as an organizational capability that shows how it deals with a dynamic environment. Currently the role of organizational learning is considered very important in dealing with organizational competitiveness that requires an effective response to environmental changes. In addition, organizational learning can also occur at various levels either individually, in groups or in organizations. Previous studies stated that whether an organization's performance increases or not will depend on the learning ability of the organization H2. Organizational learning moderates the relationship between product innovation and SME's performance.
In addition, the notion of the marketing concept has become very important in improving organizational performance in recent decades (Ferrucci, 2020;Tajeddini, 2020). Understanding of market orientation has created the behavior needed by organizations, especially SMEs to develop superior value. Market orientation is often the key to developing various organizational capabilities to meet customer needs effectively and facilitate companies to use information to increase competitive advantage (Nakos, 2019;Pratono, 2019;J Wu, 2019). Market orientation is defined by Kohli & Jaworski (1990) as a set of processes for understanding consumer culture and behavior. Iyer (2019) states that market orientation is defined as an organizational way to create superior performance through understanding the current market. This performance can be achieved by implementing a market-oriented culture, namely how organizations understand market needs, wants and demands (Genc, 2019;Nakos, 2019). Given that today's consumer desires are expanding, organizations must be able to gather more credible information in meeting today's consumer needs. Market orientation requires organizations to have knowledge to improve business performance. Philosophically the term market orientation means the application of the marketing concept. Thus, an organization that has a market orientation is one that is consistent with the marketing concept (Hanusch, 2019;Pratono, 2019;J Wu, 2019). Based on this perspective, market-focused organizations can influence the selection and implementation of strategies that ultimately lead to performance and consider market orientation as an antecedent in developing various strategies (Bamfo & Kraa, 2019). This study focuses on the role of market orientation as a moderator in the relationship between product innovation and SME's performance (Pramod Iyer, 2018). Product innovation allows organizations to have an advantage in facing competition so as to produce good performance. However, whether the performance of SME's increases or not is very much determined by how the organization's attitude views market changes. So that an understanding of market orientation in the context of SME's is an important concern.
H3. Market orientation moderates the relationship between product innovation and SME's performance.

Research and Methodology
This research adopts a quantitative approach with an explanatory research design. Data collection was obtained from respondents, namely 170 SME's owners using convenience and purposive sampling. The sample was selected in this study based on criteria, namely having run a business for 5 years and private ownership and product innovation. This is because the business that has been running for five years has experienced the dynamics of environmental change so that they can provide appropriate answers regarding the variables examined in the study. Questionnaires on a Liker scale of 7 (strongly disagree to strongly agree) were used to collect data from SME's owners. Then the data were analyzed using a structural equation model approach with Amos. And the Hayes method for moderation analysis. The model fit index estimated using CFA on AMOS-20 is as follows: C min/Df = 5.2, GFI = 0.6, AGFI = 0.55, CFI = 0.7, RFI = 0.6, NFI = 0.65, RMSEA = 0.13

Variable Measurement
The selection of measurement factors is an important step in data collection and empirical analysis as well as for testing the validity and reliability tests. The key variables designed in this study are product innovation, organizational learning, market orientation and Product Innovation SME's performance

Organizational learning
Market orientation H1 H2 H3 SME's performance. Product innovation is measured using four items adopted from Han, C., & Zhang, S. (2021). Organizational learning is measured by four items adopted from Antunes, H (2020). Market orientation is measured by three items, namely customer orientation, competitor orientation, and coordination between functions Iyer, P. (2019). SME's performance is measured by four items including net profit, market share, revenue growth and trade receivables. Where this variable is measured by several items in previous studies (table 1)

Discussion result
This section describes all research findings consisting of respondent profiles, descriptive analysis, hypothesis analysis, and hypothesis testing. Respondents in this study were actors and owners of SMEs in the creative industry. Respondents in this study were dominated by men, in the age range of 34-41 years, with 7 years of business experience, then dominated by MSMEs with a high school education background of 48% followed by bachelor graduates of 39% and masters graduates of 13%. MSME actors who come from high school, choose to do business because on average they feel that they are already bored with the profession as employees. Not a few of these high school graduates have made product innovations and have branches in their business.

Validity and Reliability
To determine a valid and reliable measurement indicator, a confirmatory factor analysis (CFA) was performed. Of all the measurement indicators, all show standard loading in the range 0.620 -0.871 and fits the model (CMIN/degrees of freedom (df) = 1.978, p = 0.000; goodness-of-fit index (GFI) = 0.922; Tucker-Lewis index (TLI) = 0.926; comparative fit index (CFI) = 0.935; root-mean-square error of approximation (RMSEA) = 0.076).
Market Orientation shows acceptance criteria with Composite Reliability (CR) (0.782), Average Variance Extracted (AVE) (0.547) and Cronbach's alpha (0.758). Market Orientation has a standard loading value range between 0.620 -0.793. SME's Performance shows acceptance criteria with Composite Reliability (CR) (0.816), Average Variance Extracted (AVE) (0.526) and Cronbach's alpha (0.764). SME's Performance has a standard loading value range between 0.663 -0.786.   Table 4 shows the data for the mean, standard deviation, skewness, kurtosis and correlation coefficients for each construct. The average score for Market Orientation (4.76) is relatively higher than the others. Market Orientation is the main variable chosen by the respondents as a factor that influences their performance as SME's actors. The behavior of market-oriented SME's actors can trigger the development of thoughts or ideas for products that will be produced in the future. In addition, other variables such as Product Innovation (4.60) and Organizational Learning (4.64) also have quite high scores.

Empirical results
Furthermore, the correlation results for each variable all show a positive correlation, with a correlation between Product Innovation and Organizational Learning (r = 0.512; p < 0.01), Product Innovation and Market Orientation (r = 0.490; p < 0.01) and Product Innovation correlation with SME's Performance (r = 0.459; p <0.01).
To test the hypothetical model, an Ordinary Least Square (OLS) regression path analysis was performed (Hayes, 1023(Hayes, , 2015. All research variables are centered on the average. The measurement model is carried out with two variables as moderators, namely Organizational Learning and Market Orientation. The results show that Product Innovation has a significant effect on SME's Performance (b = 0.89; p <0.05), Organizational Learning has a significant effect on SME's Performance (b = 0.71; p <0.05), and Market Orientation significantly significant effect on SME's Performance (b = 0.35; p <0.05).
In the moderation test, Organizational Learning significantly influences the causal relationship between Product Innovation and SME's Performance (b = 0.53; p <0.05). Meanwhile, Market Orientation is significantly a moderator variable between Product Innovation and SME's Performance with a coefficient value of 0.82; p < 0.05. From this test, it can be concluded that the hypotheses for H1, H2 and H3 are acceptable.

Conclusions
This study examines the moderating effect of organizational learning and market orientation on the relationship between product innovation and SME's performance. The findings from this study indicate that the proposed hypothesis is acceptable and has a contribution to the performance of SMEs. As said by Ko, W et al (2018) andFarida, N (2021) that organizations that apply innovation to products or services will be able to compete with competitors and have the opportunity to achieve optimal performance. In particular, the dimensions of the variables have a contribution in influencing how the performance of SME's can be improved (Fitriati, T. K, 2020;Hooi, L. W, 2020;M Saleh, M, 2021). In this study, organizational learning becomes an important factor in obtaining information and implementing knowledge on business aspects. This is as stated by Liu (2022) that for businesses to survive and have an advantage, organizations must apply learning and orientation to the market to obtain information as a basis for making business decisions. Thus, organizational learning enables better, faster and more efficient performance for SME's.
The results of this study also confirm that market orientation can moderate the relationship between product innovation and SME's performance. According to Pranoto (2019) the success of an innovation either in products or services will depend on how the organization responds to changing trends regarding the market. Tajeddini, K (2020) stated that organizations that apply the concept of market orientation will demonstrate their ability to understand market changes, which form the basis for strategies to improve business performance. Thus, the source of relevant performance will depend on how the organization responds to changes in the environment in which it operates. Iyer, P (2019) states that market orientation is a resource with potential value as an organization's ability to support its performance. Thus, organizational learning, market orientation and product innovation are factors that need to be considered by organizations where these variables can be used as a collection of external ideas and emphasize the importance of acquiring new knowledge beyond the limits of the organization's ability to improve business performance. However, the results of this study also found that the level of innovation in organizations can vary significantly based on the size of the organization itself. Thus, the application of innovation in improving performance is adjusted to the size of the organization.
This study has several important limitations. First, that in practice, product innovation is adjusted to the size of the organization itself. Second, SME's often experience problems in terms of costs and information received. Sometimes, the opinion of SME's, innovation requires a large amount of money. Then, this research is also limited to a few samples, and collected only at one point in time and is cross-sectional in nature, it is hoped that further research will expand the number of samples with a wider coverage. In addition, this research only considers the direct relationship between product innovation and SME's performance by looking at two moderating variables and this research is also quantitative in nature, it is hoped that the case study approach can dig deeper into the problems that occur in the context of SME's, especially in developing countries. Given that the current economic climate is facing massive changes, it is hoped that these findings will serve as a driving force for future researchers to explore more broadly how business performance in the SME's context can be improved.